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.
Results of Operations
Revenue
for the year ended December 31, 2020 was $100,943,269, a decrease of $16,671,617, or 14.17%, from $117,614,886 for the
previous year. This was mainly due to the decrease in sales volume of corrugating medium paper(“CMP”) and offset
printing paper and decrease in average selling prices (“ASP”) of CMP, offset printing paper and tissue paper
products, partially offset by the revenue generated from face masks in year 2020.
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, 2020 was $99,841,325, a decrease of $17,772,411,
or 15.11%, from $117,613,736 for the year ended December 31, 2019. This was mainly due to the decrease in sales volume of CMP and
offset printing paper and the decrease in ASP of CMP, offset printing paper and tissue paper products. Total quantities of offset
printing paper, CMP and tissue paper products sold during the year ended December 31, 2020 amounted to 227,331 tonnes, a decrease
of 22,813 tonnes, or 9.12%, compared to 250,144 tonnes sold during the year ended December 31, 2019.
Total quantities of CMP and offset printing paper sold decreased
by 26,111 tonnes in the year of 2020 as compared to 2019. We sold 10,088 tonnes of tissue paper products in the year of 2020 as
opposed to 6,790 tonnes in 2019. CMP production was suspended in mid-January to early March 2020 due to Chinese New Year and COVID-19
outbreak. We resumed full capacity of CMP production in May 2020. The production of offset printing paper was suspended during
January to May 2020 and resumed in June 2020. The changes in revenue and quantity sold for the year ended December 31, 2020 and
2019 are summarized as follows:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Change in
|
|
|
Change
|
|
Sales Revenue
|
|
Quantity
(Tonne)
|
|
|
Amount
|
|
|
Quantity
(Tonne)
|
|
|
Amount
|
|
|
Quantity
(Tonne)
|
|
|
Amount
|
|
|
Quantity
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular CMP
|
|
|
154,084
|
|
|
$
|
62,324,519
|
|
|
|
168,837
|
|
|
$
|
72,050,122
|
|
|
|
(14,753
|
)
|
|
$
|
(9,725,603
|
)
|
|
|
-8.74
|
%
|
|
|
-13.50
|
%
|
Light-Weight CMP
|
|
|
42,801
|
|
|
$
|
16,836,407
|
|
|
|
45,310
|
|
|
$
|
18,776,316
|
|
|
|
(2,509)
|
|
|
$
|
(1,939,909
|
)
|
|
|
-5.54
|
%
|
|
|
-10.33
|
%
|
Total CMP
|
|
|
196,885
|
|
|
$
|
79,160,926
|
|
|
|
214,147
|
|
|
$
|
90,826,438
|
|
|
|
(17,262
|
)
|
|
$
|
(11,665,512
|
)
|
|
|
-8.06
|
%
|
|
|
-12.84
|
%
|
Offset Printing Paper
|
|
|
20,358
|
|
|
$
|
12,265,746
|
|
|
|
29,207
|
|
|
$
|
20,436,130
|
|
|
|
(8,849
|
)
|
|
$
|
(8,170,384
|
)
|
|
|
-30.30
|
%
|
|
|
-39.98
|
%
|
Tissue Paper Products
|
|
|
10,088
|
|
|
$
|
8,414,653
|
|
|
|
6,790
|
|
|
|
6,351,168
|
|
|
|
3,298
|
|
|
$
|
2,063,485
|
|
|
|
48.57
|
%
|
|
|
32.49
|
%
|
Total CMP, Offset Printing Paper and Tissue Paper Revenue
|
|
|
227,331
|
|
|
$
|
99,841,325
|
|
|
|
250,144
|
|
|
$
|
117,613,736
|
|
|
|
(22,813)
|
|
|
$
|
(17,772,411
|
)
|
|
|
-9.12
|
%
|
|
|
-15.11
|
%
|
Monthly revenue (excluding revenue of digital
photo paper and tissue paper products) for the 24 months ended December 31, 2020, are summarized below:
The average selling price, or ASP, for our major products
for the years ended December 31, 2020 and 2019 are summarized as follows:
|
|
Offset
Printing
Paper ASP
|
|
|
Regular
CMP ASP
|
|
|
Light-Weight
CMP ASP
|
|
|
Tissue
Paper
Products
ASP
|
|
Year Ended December 31, 2019
|
|
$
|
700
|
|
|
$
|
427
|
|
|
$
|
414
|
|
|
$
|
935
|
|
Year Ended December 31, 2020
|
|
$
|
603
|
|
|
$
|
404
|
|
|
$
|
393
|
|
|
$
|
834
|
|
Decrease from comparable period in the previous year
|
|
$
|
-97
|
|
|
$
|
-23
|
|
|
$
|
-21
|
|
|
$
|
-101
|
|
Decrease by percentage
|
|
|
-13.86
|
%
|
|
|
-5.39
|
%
|
|
|
-5.07
|
%
|
|
|
-10.80
|
%
|
The following is a chart showing the month-by-month
ASPs (excluding the ASPs of digital photo paper and tissue paper products) for the 24 month period ended December 31, 2020:
Corrugating Medium Paper
Revenue from CMP amounted
to $79,160,926 (79.29% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended December
31, 2020, representing a decrease of $11,665,512, or 12.84%, from $90,826,438 during 2019.
We sold 196,885 tonnes
of CMP in the year ended December 31, 2020 as compared to 214,147 tonnes in the year ended December 31, 2019, representing a 8.06%
decrease in quantity sold.
ASP for regular CMP
dropped from $427/tonne in 2019 to $404/tonne in 2020, representing a 5.39% decrease. ASP in RMB for regular CMP in 2019 and 2020
was RMB2,942 and RMB2,789, respectively, representing a 5.20% decrease. The quantity of regular CMP sold decreased by 14,753 tonnes,
from 168,837 tonnes in 2019 to 154,084 tonnes in 2020.
ASP for light-weight
CMP dropped from $414/tonne in 2019 to $393/tonne in 2020, representing a $5.07% decrease. ASP in RMB for light-weight CMP in 2019
and 2020 was RMB2,857 and RMB2,712, respectively, representing a 5.08% decrease. The quantity of light-weight CMP sold decreased
by 2,509 tonnes, from 45,310 tonnes in 2019, to 42,801 tonnes in 2020.
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, 2020 and 2019 were 42.56% and 46.68%, respectively, representing a decrease of 4.12%.
Quantities sold for regular CMP that was produced by
the PM6 production line from January 2019 to December 2020 are as follows:
Offset Printing Paper
Revenue from offset
printing paper was $12,265,746 (12.29% of the total offset printing paper, CMP and tissue paper products revenues) for the year
ended December 31, 2020, representing a decrease of $8,170,384, or 39.98%, from $20,436,130 in 2019. We sold 20,358 tonnes of offset
printing paper in the year ended December 31, 2020, compared to 29,207 tonnes in 2019, a decrease of 8,849 tonnes, or 30.30%. ASPs
for offset printing paper in the year ended December 31, 2019 and 2020 was $700/tonne and $603/tonne, respectively, representing
a 13.86% decrease. ASP in RMB for offset printing paper for the year ended December 31, 2019 and 2020 was RMB4,824 and RMB4,154,
respectively, representing a 13.89% decrease.
Tissue Paper Products
We
produce tissue paper products, including toilet paper, boxed and soft-packed tissues, handkerchief tissues and paper napkins,
as well as bathroom and kitchen paper towels that are marketed and sold under the brand “Qingmu”. In December
2018 and November 2019, we completed the construction, installation and test of operation of our PM8 and PM9 production
lines. We launched the complete line of processing base tissue paper with designated capacity of 15,000 tonnes/year, and
producing finished tissue paper products with designated capacity of 15,000 tonnes/year.
Revenue from tissue
paper products was $8,414,653 (8.43% of the total offset printing paper, CMP and tissue paper products revenues) for the year ended
December 31, 2020, representing an increase of $2,063,485, or 32.49%, from $6,351,168 in 2019. We sold 10,088 tonnes of tissue
paper products (including 305 tonnes of tissue base paper) in the year ended December 31, 2020, as compared to 6,790 tonnes in
2019, an increase of 3,298 tonnes, or 48.57%. Except for the production suspension in the first quarter of 2020, the production
and sales of tissue paper products have been growing up steadily since the launch of PM8 and PM9 in December 2018 and November
2019.
Revenue of Face Mask
On April 29, 2020,
we launched a production line of non-medical single-use face masks, following the completion of raw materials preparation, trial
run of the equipment and the sample products inspection. Revenue generated from selling face masks were $1,101,944 for the year
ended December 31, 2020. We sold 10,301 thousand pieces of face masks in year of 2020.
Cost of Sales
Total cost of sales for CMP, offset printing paper and tissue
paper products in the year ended December 31, 2020 was $94,669,389, a decrease of $9,253,025, or 8.90%, from $103,922,414 for the
year ended December 31, 2019. This was mainly a result of the decrease in sales volume of CMP and offset printing paper, partially
offset by the increase in sales volume of tissue paper products. Cost of sales for CMP was $74,279,241 for the year ended December
31, 2020, as compared to $81,511,234 in 2019. The decrease in the cost of sales of $7,231,993 for CMP was mainly due to the decrease
in the quantities of CMP sold, partially offset by the increase in cost of recycled paper board in the year of 2020. Average cost
of sales per tonne for CMP decreased by 1.05%, from $381 for the year ended December 31, 2019, to $377 in 2020. The slight decrease
was mainly attributable to lower unit cost of manufacturing overhead (e.g. wages, repair and maintenance etc.) due to suspension
of production in February 2020, partially offset by higher average unit purchase costs (net of applicable value added tax) of recycled
paper board. Cost of sales for offset printing paper was $10,147,280 for the year ended December 31, 2020, as compared to $14,061,771
in 2019. Average cost of sales per tonne of offset printing paper increased by 3.53%, from $481 for the year ended December 31,
2019, to $498 in 2020. The increase was mainly attributable to higher average unit purchase costs (net of applicable value added
tax) of recycled white scrap paper. Cost of sales for tissue paper products was $10,242,868 for the year ended December 31, 2020,
as compared to $8,349,409 in 2019. Average cost of sales per tonne of tissue paper products decreased by 17.48%, from $1,230 for
the year ended December 31, 2019, to $1,015 for 2020.
Changes in cost of sales and cost per tonne by product
for the year ended December 31, 2020 and 2019 are summarized below:
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
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
|
|
$
|
58,947,059
|
|
|
$
|
383
|
|
|
$
|
64,636,452
|
|
|
$
|
383
|
|
|
$
|
(5,689,393
|
)
|
|
$
|
-
|
|
|
|
-8.80
|
%
|
|
|
0.00
|
%
|
Light-Weight CMP
|
|
$
|
15,332,182
|
|
|
$
|
358
|
|
|
$
|
16,874,783
|
|
|
$
|
372
|
|
|
$
|
(1,542,600
|
)
|
|
$
|
(14
|
)
|
|
|
-9.14
|
%
|
|
|
-3.76
|
%
|
Total CMP
|
|
$
|
74,279,241
|
|
|
$
|
377
|
|
|
$
|
81,511,234
|
|
|
$
|
381
|
|
|
$
|
(7,231,993
|
)
|
|
$
|
(4
|
)
|
|
|
-8.87
|
%
|
|
|
-1.05
|
%
|
Offset Printing Paper
|
|
$
|
10,147,280
|
|
|
$
|
498
|
|
|
$
|
14,061,771
|
|
|
$
|
481
|
|
|
$
|
(3,914,491
|
)
|
|
$
|
17
|
|
|
|
-27.84
|
%
|
|
|
3.53
|
%
|
Tissue Paper Products
|
|
$
|
10,242,868
|
|
|
$
|
1,015
|
|
|
$
|
8,349,409
|
|
|
$
|
1,230
|
|
|
$
|
1,893,459
|
|
|
$
|
(215
|
)
|
|
|
22.68
|
%
|
|
|
-17.48
|
%
|
Total CMP, Offset Printing Paper and Tissue Paper Revenue
|
|
$
|
94,669,389
|
|
|
|
$ n/a
|
|
|
$
|
103,922,414
|
|
|
|
$ n/a
|
|
|
$
|
(9,253,025
|
)
|
|
|
$ n/a
|
|
|
|
-8.90
|
%
|
|
|
n/a %
|
|
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,
2020 were RMB 1,582/tonne (approximately $229/tonne) and RMB 2,086/tonne (approximately $303/tonne), respectively, as compared
to RMB 1,536/tonne (approximately $223/tonne) and RMB 1,855/tonne (approximately 269/tonne) for the year ended December 31, 2019,
respectively. These changes (in US dollars) represent a year-over-year increase of 2.69% for the unit purchase cost of recycled
paper board and a year-over-year increase of 12.64% for the unit purchase cost of recycled white scrap paper. 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 2019 to December 2020 are shown below:
Electricity
and gas are our two main energy sources. Electricity and gas accounted for approximately 5% and 10.5% of total sales in 2020,
respectively, compared to 6% and 10.3% of total sales 2019. The monthly energy cost (electricity, coal and gas) as a
percentage of total monthly sales of our main paper products for the 24 months ended December 31, 2020 are summarized as
follows:
Gross Profit
Gross profit for December 31, 2020 was $5,701,985 (5.65% of
the total revenue), representing a decrease of $7,977,533, or 58.32%, from the gross profit of $13,679,518 (11.63% of the total
revenue) for the year ended December 31, 2019. The decrease was mainly due to (i) the decrease in quantities sold of CMP and offset
printing paper and (ii) the decrease of ASP of CMP, offset printing paper and tissue paper products, partially offset by the increase
in sales quantities of tissue paper products.
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, 2020 was $5,171,937, a decrease of $8,519,386, or 62.22%, from the gross profit of $13,691,322
for the year ended December 31, 2019. The decrease was mainly the result of the factors discussed above.
The overall gross profit margin for offset printing paper, CMP
and tissue paper products decreased by 6.46 percentage points, from 11.64% for the year ended December 31, 2019, to 5.18% for the
year ended December 31, 2020.
Gross profit margin for regular CMP for the year ended December
31, 2020 was 5. 42%, or 4.87 percentage points lower, as compared to gross profit margin of 10.29% for the year ended December
31, 2019. Such decrease was primarily due to decrease in ASP of regular CMP, partially offset by the decrease in unit cost of sales.
Gross profit margin for light-weight CMP for the year ended
December 31, 2020 was 8.93%, or 1.20 percentage points lower, as compared to gross profit margin of 10.13% for the year ended December
31, 2019.
Gross profit margin for offset printing paper was 17.27% for
the year ended December 31, 2020, a decrease of 13.92 percentage points, as compared to 31.19% for the year ended December 31,
2019. Such increase was mainly due to the increase of purchase price of recycled white scrap paper and the decrease in ASP of offset
printing paper.
Gross profit margin
for tissue paper products was -21.73% for the year ended December 31, 2020, an increase of 9.73 percentage points, as compared
to -31.46% for the year ended December 31, 2019. The increase was mainly due to the decrease in cost of tissue base paper.
Monthly gross profit margins for our corrugating
medium paper and offset printing paper for the 24-month period ended December 31, 2020 are as follows:
Face Masks
Gross profit for face masks for the year
ended December 31, 2020 was $530,049, representing a gross margin of 48.10%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended
December 31, 2020 were $11,157,789, an increase of $1,376,070, or 14.07% from $9,781,719 for the year ended December 31, 2019.
The increase was mainly attributed to issuance of 2,000,000 shares of common stock valued at $1,200,000 to officers and directors.
Income (Loss) from Operations
Operating loss for the year ended December 31, 2020 was $5,455,804,
a decrease of $9,353,603, or 239.97%, from income from operations of $3,897,799 for the year ended December 31, 2019. The decrease
was primarily due to the decrease in gross profit and increase in selling, general and administrative expenses.
Other Income and Expenses
Interest expense for
the year ended December 31, 2020 increased by $100,144, from $926,368 for the year ended December 31, 2019, to $1,026,512. The
Company had short-term and long-term interest-bearing loans and lease obligation that aggregated $16,566,324 as of December 31,
2020, as compared to $15,137,181 as of December 31, 2019.
Net Income (Loss)
As a
result of the above, net loss was $5,554,002 for the year ended December 31, 2020, representing a decrease of $7,775,184, or
350.05%, from net income of $2,221,182 for year ended December 31, 2019.
Accounts Receivable
Net accounts receivable
decreased by $730,254, or 23.41%, to $2,389,057 as of December 31, 2020, as compared with $3,119,311 as of December 31, 2019. We
usually collect accounts receivable within 30 days of delivery and completion of sales.
Inventories
Inventories consist
of raw materials (accounting for 21.69% of total value of inventory as of December 31, 2020), semi-finished goods and finished
goods. As of December 31, 2020, the recorded value of inventory decreased by 23.25% to $1,233,801 from $1,607,463 as of December
31, 2019. Due to the uncertainty of market and economy situation during the pandemic, a minimum level of inventory was maintained
at the end of 2020.
A summary of changes
in major inventory items is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
$ Change
|
|
|
% Change
|
|
Raw Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
Recycled paper board
|
|
$
|
19,459
|
|
|
$
|
40,032
|
|
|
|
-20,573
|
|
|
|
-51.39
|
%
|
Recycled white scrap paper
|
|
|
11,193
|
|
|
|
10,541
|
|
|
|
652
|
|
|
|
6.19
|
%
|
Tissue base paper
|
|
|
14,027
|
|
|
|
122,648
|
|
|
|
-108,621
|
|
|
|
-88.56
|
%
|
Gas
|
|
|
55,473
|
|
|
|
41,675
|
|
|
|
13,798
|
|
|
|
33.11
|
%
|
Mask fabric and other raw materials
|
|
|
167,399
|
|
|
|
171,287
|
|
|
|
-3,888
|
|
|
|
-2.27
|
%
|
Total Raw Materials
|
|
|
267,551
|
|
|
|
386,183
|
|
|
|
-118,632
|
|
|
|
-30.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-finished Goods
|
|
|
176,703
|
|
|
|
83,266
|
|
|
|
93,437
|
|
|
|
112.22
|
%
|
Finished Goods
|
|
|
789,547
|
|
|
|
1,212,849
|
|
|
|
-423,302
|
|
|
|
-34.90
|
%
|
Total inventory, gross
|
|
|
1,233,801
|
|
|
|
1,682,298
|
|
|
|
-448,497
|
|
|
|
-26.66
|
%
|
Inventory reserve
|
|
|
-
|
|
|
|
(74,835
|
)
|
|
|
74,835
|
|
|
|
-100.00
|
%
|
Total inventory, net
|
|
$
|
1,233,801
|
|
|
$
|
1,607,463
|
|
|
|
(373,662
|
)
|
|
|
-23.25
|
%
|
Accounts Payable
Accounts payable was
$592,391 as of December 31, 2020, an increase of 341,905, or 136.50%, from $250,486 as of December 31, 2019.
Liquidity and Capital resources
As of December 31, 2020 the we had current assets of $14,909,605
and current liabilities of $18,340,074 (including amounts due to related parties of $727,433 and interest payable for related party
loans of $649,468), resulting in a working capital deficit of approximately $3,430,469; as of December 31, 2019, the Company had
current assets of $24,041,239 and current liabilities of $16,835,460 (including amounts due to related parties of $1,147,438),
resulting in a working capital of approximately $7,205,779. The deficit as of December 31, 2020 was mainly attributed to
the payments for acquisition of Hebei Tengsheng. On June 25, 2019, Dongfang Paper entered into an acquisition agreement with shareholder
of Hebei Tengsheng, to buy up 100% shares of Hebei Tengsheng with a purchase price of RMB 320 million (approximately $49 million).
As of December 31, 2020, RMB 128 million (approximately $20 million) has been paid and recorded as ‘Prepayment on property,
plant and equipment’ in the consolidated balance sheet.
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 $145,052 (RMB1,000,000). The lease
agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements with
Hebei Fangsheng, who agreed to extend the lease term to August 9, 2022 with the same rental payment as original lease agreement.
The accrued rental owed to Hebei Fangsheng was approximately $nil and $56,552 which was recorded as part of the current liabilities
as of December 31, 2020 and December 31, 2019, respectively.
Capital Expenditure Commitment as of December 31, 2019
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, 2020, we had approximately $4.6 million in
capital expenditure commitments that were mainly related to the purchase of paper machine of PM10. These commitments are expected
to be financed by bank loans and cash flows generated from our business operations.
Financing with Sale-Leaseback
The
Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co.,
Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately
US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million
(approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL
for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100
(approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as
right-of-use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated
with TLCL’s implicit interest rate of 15.6% per annum and stated at $567,099 at the inception of the lease on August
17, 2020.
Hebei
Tengsheng made payments due according to the schedule. As of December 31, 2020, the balance of Leased Equipment net of
amortization was $2,397,653. The lease liability were $536,959 and its current portion in the amount of $182,852 as of
December 31, 2020. Amortization of the Leased Equipment was $51,574 for the year ended December 31, 2020. Total interest
expenses for the sale lease back arrangement was $28,083 for the year ended December 31, 2020.
As a
result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded. The deferred gain is amortized over
the lease term and as an offset to amortization of the Leased Equipment.
Cash, Cash Equivalents and restricted
cash
Our cash, cash equivalents and restricted
cash as of December 31, 2020 was $4,142,437, a decrease of $1,695,308, from $5,837,745 as of December 31, 2019. The decrease of
cash and cash equivalents for the year ended December 31, 2020 was attributable to a number of factors:
i. Net cash provided by operating activities
Net cash provided by operating activities was $16,143,527 for
the year ended December 31, 2020. The balance represented an increase of cash of $8,613,053, or 114.38%, from $7,530,474 provided
for the year ended December 31, 2019. Net loss for the year ended December 31, 2020 was $5,554,002, representing a decrease of
$7,775,184, or 350.05%, from a net income of $2,221,182 for the year ended December 31, 2019. Changes in various asset and liability
account balances throughout the year ended December 31, 2020 also contributed to the net change in cash from operating activities
in year ended December 31, 2020. Chief among such changes is the decrease of accounts receivable in the amount of $923,429 during
the year of 2020 (an increase to net cash for the year ended December 31, 2020 cash flow purposes). There was also a decrease of
$458,878 in the ending inventory balance as of December 31, 2020 (an increase to net cash). In addition, the Company had non-cash
expenses relating to depreciation and amortization in the amount of $15,793,854. The Company also had a net decrease of $5,301,953
in prepayment and other current assets (an increase to net cash) and a net decrease of $796,595 in other payables and accrued liabilities
and related parties (an increase to net cash), as well as a decrease in income tax payable of $1,153,191 (a decrease to net cash)
during the year ended December 31, 2020.
ii. Net cash used in investing activities
We incurred $20,526,004
in net cash expenditures for investing activities during the year ended December 31, 2020, as compared to $7,866,849 for the year
ended December 31, 2019. Expenditures in the year ended December 31, 2020 were mainly for the prepayment of acquisition of Hebei
Tengsheng assets and expenditures on improvement of industrial building.
iii. Net cash provided in financing
activities
Net cash provided
by financing activities was proceeds from issuance of shares and warrants and repayment of lease liability of $2,054,855 for the
year ended December 31, 2020, as compared to net cash used in financing activities in the amount of $5,772,467 for the year ended
December 31, 2019.
Short-term bank loans
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Industrial and Commercial Bank of China (“ICBC”) Loan 1
|
|
$
|
-
|
|
|
$
|
6,163,814
|
|
Industrial and Commercial Bank of China (“ICBC”) Loan 2
|
|
|
6,435,348
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total short-term bank loans
|
|
$
|
6,435,348
|
|
|
$
|
6,163,814
|
|
|
(a)
|
On December 20, 2019, the Company entered into a working
capital loan agreement with the ICBC, with a balance of $6,163,814 as of December 31, 2019. The working capital loan was secured
by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785%
per annum. The loan was repaid on December 14, 2020.
|
|
(b)
|
On December 11, 2020, the Company entered into a working
capital loan agreement with the ICBC, with a balance of $6,435,348 as of December 31, 2020. The working capital loan was secured
by the Land use right of Dongfang Paper as collateral for the benefit of the bank. The loan bears a fixed interest rate of 4.785%
per annum. The loan will be due and repaid at various installments by December 7, 2021.
|
As of December 31, 2020, there were guaranteed
short-term borrowings of $6,435,348 and unsecured bank loans of $nil. As of December 31, 2019, there were guaranteed short-term
borrowings of $6,163,814 and unsecured bank loans of $nil.
The average short-term borrowing rates
for the years ended December 31, 2020, and 2019 were approximately 4.79% and 4.93%, respectively.
Long-term loans from credit union
As of December 31, 2020, and 2019, loans
payable to Rural Credit Union of Xushui County, amounted to $9,594,017 and $8,973,367, respectively.
On April 16, 2014,
the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was originally
due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent third party. Interest
payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed for additional 5 years
and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of December 31, 2020, and 2019,
total outstanding loan balance was $1,318,028 and $1,232,763, respectively, Out of the total outstanding loan balance, current
portion amounted were $214,563 and $143,345 as of December 31, 2020, and 2019, respectively, which are presented as current liabilities
in the consolidated balance sheet and the remaining balance of $1,103,465 and $1,089,418 are presented as non-current liabilities
in the consolidated balance sheet as of December 31, 2020, and 2019, respectively.
On July 15,
2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years, which was
originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan was extended
for additional 5 years and will be due and payable in various installments from December 21, 2018 to June 20, 2023. The loan is
secured by certain of the Company’s manufacturing equipment with net book value of $2,349,796 and $3,935,270 as of December
31, 2020, and 2019, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month. As of December 31,
2020, and 2019, the total outstanding loan balance was $3,831,476 and $3,583,613, respectively. Out of the total outstanding loan
balance, current portion amounted were $337,169 and $172,013 as of December 31, 2020, and 2019 respectively, which are presented
as current liabilities in the consolidated balance sheet and the remaining balance of $3,494,307 and $3,411,600 are presented as
non-current liabilities in the consolidated balance sheet as of December 31, 2020, and 2019, respectively.
On April 17,
2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was
due and payable in various installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its
land use right as collateral for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6%
per month. As of December 31, 2020 and 2019, the total outstanding loan balance was $2,452,145 and $2,293,512, respectively. Out
of the total outstanding loan balance, current portion amounted were $2,452,145 and $1,146,756 as of December 31, 2020 and 2019,
respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and
$1,146,756 are presented as non-current liabilities in the consolidated balance sheet as of December 31, 2020 and 2019, respectively.
On December
12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which
is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan is secured by Hebei Tengsheng with
its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate of
7.56% per annum. As of December 31, 2020, and 2019, the total outstanding loan balance was $1,992,368 and $1,863,479, respectively.
Out of the total outstanding loan balance, current portion amounted were $1,992,368 and $143,345 as of December 31, 2020, and 2019,
respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and
$1,720,134 are presented as non-current liabilities in the consolidated balance sheet as of December 31, 2020, and 2019, respectively.
Total interest
expenses for the short-term bank loans and long-term loans for the years ended December 31, 2020, and 2019 were $695,287 and $831,732,
respectively.
Shareholder Loans
Mr Zhenyong Liu, the
Company’s CEO has loaned money to Dongfang Paper for working capital purposes over a period of time. On January 1, 2013,
Dongfang Paper and Mr. Zhenyong Liu renewed the three-year term loan previously entered on January 1, 2010, and extended the maturity
date further to December 31, 2015. On December 31, 2015, the Company paid off the loan of $2,249,279, together with interest of
$391,374 for the period from 2013 to 2015. Approximately $392,855 and $367,441 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, 2020, and 2019, 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, 2020, and 2019, approximately $45,978 and $43,003 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 31, 2020, and 2019, the outstanding interest was $210,635 and $197,009, 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, 2020, and 2019, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such related party
loans are $nil and $94,636 for the years ended December 31, 2020, and 2019, respectively. The accrued interest owe to the CEO was
approximately $649,468 and $607,453, as of December 31, 2020, and 2019, respectively, which was recorded in other payables and
accrued liabilities.
As of December
31, 2020, and 2019, amount due to shareholder are $727,433 and $483,433, respectively, which represents funds from shareholders
to pay for various expenses incurred in the U.S. The amount is due on demand with interest free.
Critical Accounting Policies and Estimates
The Company’s
financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require
us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods. Management makes these estimates using the best information available at the time the estimates are made. However, actual
results could differ materially from those estimates. The most critical accounting policies are listed below:
Revenue Recognition Policy
The Company recognizes
revenue when goods are delivered and a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of the Company exist, and collectability is reasonably assured. Goods are considered delivered
when the customer’s truck picks up goods at our finished goods inventory warehouse.
Long-Lived Assets
The Company evaluates
the recoverability of long-lived assets and the related estimated remaining useful lives when events or circumstances lead management
to believe that the carrying value of an asset may not be recoverable and the undiscounted cash flows estimated to be generated
by those assets are less than the assets’ carrying amount. In such circumstances, those assets are written down to estimated
fair value. Our judgments regarding the existence of impairment indicators are based on market conditions, assumptions for operational
performance of our businesses, and possible government policy toward operating efficiency of the Chinese paper manufacturing industry.
For the years ended December 31, 2020 and 2019, no events or circumstances occurred for which an evaluation of the recoverability
of long-lived assets was required. We are currently not aware of any events or circumstances that may indicate any need to record
such impairment in the future.
Foreign Currency Translation
The functional currency
of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Under ASC Topic 830-30, all assets and
liabilities are translated into United States dollars using the current exchange rate at the end of each fiscal period. The current
exchange rates used by the Company as of December 31, 2020 and 2019 to translate the Chinese RMB to the U.S. Dollars are 6.5249:1
and 6.9762:1, respectively. Revenues and expenses are translated using the prevailing average exchange rates at 6.8941:1, and 6.8948:1
for the years ended December 31, 2020 and 2019, 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 $4,751,031 (RMB31,000,000), which matures at various
times in 2023. Baoding Huanrun Trading Co. is one of our major suppliers of raw materials. This helps us to maintain a good relationship
with the supplier and negotiate for better terms in payment for materials. If Huanrun Trading Co. were to become insolvent, the
Company could be materially adversely affected. Except as aforesaid, we have no material off-balance sheet transactions.
Recent Accounting Pronouncements
In June 2016, the
FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit
losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments.
ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. In October 2019, the
FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective
date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective
for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted.
We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed consolidated financial statements.
In December 2019,
the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 will simplify the
accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve
consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public
business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2020. All other amendments should be applied on a prospective basis. We do not expect the adoption of ASU 2019-12
to have a material impact on our condensed consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Foreign Exchange Risk
While our reporting
currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB.
All of our assets are denominated in RMB except for some cash and cash equivalents and accounts receivables. As a result, we are
exposed to foreign exchange risks as our revenues and results of operations may be affected by fluctuations in the exchange rate
between US dollar and RMB. If the RMB depreciates against the US dollar, the value of our RMB revenues, earnings and assets as
expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to
reduce our exposure to foreign exchange risk.
Inflation
Although we are generally
able to pass along minor incremental cost inflation to our customers, inflation such as increases in the costs of our products
and overhead costs may adversely affect our operating results. We do not believe that inflation in China has had a material impact
on our financial position or results of operations to date, however, a high rate of inflation in the future may have an adverse
effect on our ability to maintain current levels of gross margin and selling and distribution, general and administrative expenses
as a percentage of net revenues if the selling prices of our products do not increase in line with the increased costs.
Item 8. Financial Statements and Supplementary Data
Our audited financial
statement for the fiscal year ended December 31, 2020 and 2019, together with the report of the independent certified public accounting
firms thereon and the notes thereto, are presented beginning at page F-1.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
To:
|
The
Board of Directors and Stockholders of
|
IT
Tech Packaging, Inc.
Opinion
on the Financial Statements
We have audited the accompanying
consolidated balance sheets of IT Tech Packaging, Inc. (the Company) as of December 31, 2020, and 2019, and the related
consolidated statements of income (loss) and comprehensive income (loss), changes in stockholders’ equity, and cash
flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to
as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2020, and 2019, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted
in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from
the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:
(1) related to the accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in anyway our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matters or on the accounts or disclosures to which they relate.
The critical audit matter related to the Company’s property,
plant and equipment. The principal considerations in determining that this was a critical audit matter was that the Company had a substantial
amount of property, plant, and equipment, and the carrying value of such assets are subject to estimation, which involves judgment. The
plant and equipment may be placed into service at varying times, and their ability to contribute to the generation of cash flows is impacted
by multiple factors. The audit engagement team addressed this critical accounting matter by reviewing the Company’s accounting policies,
and perform extended procedures including physical inspection, corroborated with enquiry, examination of contracts, and independent analysis
via recalculation of depreciation and impairment testing. The engagement team’s testing provided adequate evidence to support our
audit opinion and to mitigate the risk of material misstatement to an acceptable level. The accounts that are affected by this critical
audit matter is property plant and equipment, and the related depreciation that is allocated into cost of sales, and impairment expense,
if any.
/s/
WWC, P.C.
WWC,
P.C.
Certified
Public Accountants
We
have served as the Company’s auditor since March 25, 2018.
San
Mateo, California
March 23, 2021, except for Note 12, as to which the date is April 19,
2021.
IT
TECH PACKAGING, INC.
CONSOLIDATED
BALANCE SHEETS
AS
OF DECEMBER 31, 2020 AND 2019
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
4,142,437
|
|
|
$
|
5,837,745
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable (net of allowance for doubtful accounts of $34,391 and $59,922 as of December 31, 2020 and December 2019, respectively)
|
|
|
2,389,057
|
|
|
|
3,119,311
|
|
Inventories
|
|
|
1,233,801
|
|
|
|
1,607,463
|
|
Prepayments and other current assets
|
|
|
7,051,515
|
|
|
|
11,613,241
|
|
Due from related parties
|
|
|
92,795
|
|
|
|
1,863,479
|
|
Total current assets
|
|
|
14,909,605
|
|
|
|
24,041,239
|
|
|
|
|
|
|
|
|
|
|
Prepayment on property, plant and equipment
|
|
|
21,149,749
|
|
|
|
1,433,445
|
|
Finance lease right-of-use assets, net
|
|
|
2,397,653
|
|
|
|
-
|
|
Property, plant, and equipment, net
|
|
|
145,142,642
|
|
|
|
151,616,852
|
|
Value-added tax recoverable
|
|
|
2,566,195
|
|
|
|
2,621,841
|
|
Deferred tax asset non-current
|
|
|
13,708,630
|
|
|
|
10,485,053
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
$199,874,474
|
|
|
$
|
190,198,430
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
$
|
6,435,348
|
|
|
$
|
6,163,814
|
|
Current portion of long-term loans from credit union
|
|
|
4,996,245
|
|
|
|
1,605,459
|
|
Lease liability
|
|
|
182,852
|
|
|
|
-
|
|
Accounts payable
|
|
|
592,391
|
|
|
|
250,486
|
|
Advance from customers
|
|
|
82,625
|
|
|
|
98,311
|
|
Due to related parties
|
|
|
727,433
|
|
|
|
539,985
|
|
Accrued payroll and employee benefits
|
|
|
224,930
|
|
|
|
291,924
|
|
Other payables and accrued liabilities
|
|
|
4,838,601
|
|
|
|
6,503,010
|
|
Income taxes payable
|
|
|
259,649
|
|
|
|
1,382,471
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,340,074
|
|
|
|
16,835,460
|
|
|
|
|
|
|
|
|
|
|
Loans from credit union
|
|
|
4,597,772
|
|
|
|
7,367,908
|
|
Deferred gain on sale-leaseback
|
|
|
387,087
|
|
|
|
-
|
|
Lease liability - non-current
|
|
|
354,107
|
|
|
|
-
|
|
Derivative liability
|
|
|
1,115,260
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $17,950,224 and $19,558,568 as of December 31, 2020 and 2019, respectively)
|
|
|
24,794,300
|
|
|
|
24,203,368
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Common stock, 500,000,000 shares authorized,
$0.001 par value per share, 28,535,816 and 22,054,816 shares issued and outstanding as of December 31, 2020 and December 31,
2019, respectively
|
|
|
28,536
|
|
|
|
22,055
|
|
Additional paid-in capital
|
|
|
53,989,548
|
|
|
|
51,155,174
|
|
Statutory earnings reserve
|
|
|
6,080,574
|
|
|
|
6,080,574
|
|
Accumulated other comprehensive income (loss)
|
|
|
5,740,722
|
|
|
|
(6,057,537
|
)
|
Retained earnings
|
|
|
109,240,794
|
|
|
|
114,794,796
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
175,080,174
|
|
|
|
165,995,062
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
199,874,474
|
|
|
$
|
190,198,430
|
|
See
accompanying notes to consolidated financial statements.
IT TECH PACKAGING, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
100,943,269
|
|
|
$
|
117,614,886
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(95,241,284
|
)
|
|
|
(103,935,368
|
)
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
5,701,985
|
|
|
|
13,679,518
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
(11,157,789
|
)
|
|
|
(9,781,719
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) Income from Operations
|
|
|
(5,455,804
|
)
|
|
|
3,897,799
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
32,033
|
|
|
|
64,717
|
|
Subsidy income
|
|
|
220,478
|
|
|
|
261,136
|
|
Interest expense
|
|
|
(1,026,512
|
)
|
|
|
(926,368
|
)
|
Loss on change in derivative liability
|
|
|
(426,055
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income before Income Taxes
|
|
|
(6,655,860
|
)
|
|
|
3,297,284
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit (Provision for Income Taxes)
|
|
|
1,101,858
|
|
|
|
(1,076,102
|
)
|
|
|
|
|
|
|
|
|
|
Net (Loss) Income
|
|
|
(5,554,002
|
)
|
|
|
2,221,182
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
11,798,259
|
|
|
|
(2,793,585
|
)
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income (Loss)
|
|
$
|
6,244,257
|
|
|
$
|
(572,403
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted (Loss) Earnings per Share
|
|
$
|
(0.21
|
)
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding – Basic and Diluted
|
|
|
26,498,298
|
|
|
|
22,034,905
|
|
IT
TECH PACKAGING, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Statutory
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Reserve
|
|
|
Income (loss)
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
22,022,316
|
|
|
$
|
22,022
|
|
|
$
|
51,137,657
|
|
|
$
|
6,080,574
|
|
|
$
|
(3,263,952
|
)
|
|
$
|
112,573,614
|
|
|
$
|
166,549,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to Weitian
|
|
|
32,500
|
|
|
|
33
|
|
|
|
17,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,550
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,793,585
|
)
|
|
|
|
|
|
|
(2,793,585
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,221,182
|
|
|
|
2,221,182
|
|
Balance at December 31, 2019
|
|
|
22,054,816
|
|
|
$
|
22,055
|
|
|
$
|
51,155,174
|
|
|
$
|
6,080,574
|
|
|
$
|
(6,057,537
|
)
|
|
$
|
114,794,796
|
|
|
$
|
165,995,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares to officer and directors
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
1,198,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
Issuance of shares
|
|
|
4,400,000
|
|
|
|
4,400
|
|
|
|
1,579,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,584,155
|
|
Issuance of shares to a consultant
|
|
|
60,000
|
|
|
|
60
|
|
|
|
41,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,000
|
|
Issuance of shares to a consultant
|
|
|
21,000
|
|
|
|
21
|
|
|
|
14,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,700
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,798,259
|
|
|
|
|
|
|
|
11,798,259
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,554,002
|
)
|
|
|
(5,554,002
|
)
|
Balance at December 31, 2020
|
|
|
28,535,816
|
|
|
$
|
28,536
|
|
|
$
|
53,989,548
|
|
|
$
|
6,080,574
|
|
|
$
|
5,740,722
|
|
|
$
|
109,240,794
|
|
|
$
|
175,080,174
|
|
See
accompanying notes to consolidated financial statements.
IT
TECH PACKAGING, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
(5,554,002
|
)
|
|
$
|
2,221,182
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,793,854
|
|
|
|
15,304,039
|
|
Loss on derivative liability
|
|
|
426,055
|
|
|
|
-
|
|
Allowances for obsolete inventories, net
|
|
|
-
|
|
|
|
75,719
|
|
(Recovery from) Allowance for bad debts
|
|
|
(28,087
|
)
|
|
|
2,192
|
|
Share-based compensation and expenses
|
|
|
1,256,700
|
|
|
|
-
|
|
Gain on acquisition of a subsidiary
|
|
|
-
|
|
|
|
-
|
|
Deferred tax
|
|
|
(2,364,575
|
)
|
|
|
(2,369,683
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
923,429
|
|
|
|
(294,882
|
)
|
Prepayments and other current assets
|
|
|
5,301,953
|
|
|
|
(5,392,916
|
)
|
Inventories
|
|
|
458,878
|
|
|
|
1,207,958
|
|
Accounts payable
|
|
|
307,198
|
|
|
|
(372,728
|
)
|
Advance from customers
|
|
|
(21,281
|
)
|
|
|
99,472
|
|
Notes payable
|
|
|
-
|
|
|
|
(3,625,921
|
)
|
Related parties
|
|
|
1,984,619
|
|
|
|
(1,757,231
|
)
|
Accrued payroll and employee benefits
|
|
|
(82,516
|
)
|
|
|
82,813
|
|
Other payables and accrued liabilities
|
|
|
(1,105,508
|
)
|
|
|
1,169,967
|
|
Income taxes payable
|
|
|
(1,153,191
|
)
|
|
|
1,180,493
|
|
Net Cash Provided by Operating Activities
|
|
|
16,143,526
|
|
|
|
7,530,474
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(21,106,210
|
)
|
|
|
(6,416,481
|
)
|
Proceeds from sale of property, plant and equipment
|
|
|
580,206
|
|
|
|
-
|
|
Acquisition of a subsidiary
|
|
|
-
|
|
|
|
(1,450,368
|
)
|
Net Cash Used in Investing Activities
|
|
|
(20,526,004
|
)
|
|
|
(7,866,849
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares and warrants, net
|
|
|
2,273,360
|
|
|
|
-
|
|
Repayments of related party loans
|
|
|
-
|
|
|
|
(2,175,553
|
)
|
Proceeds from short term bank loans
|
|
|
6,090,715
|
|
|
|
10,152,579
|
|
Proceeds from credit union loans
|
|
|
-
|
|
|
|
4,206,068
|
|
Repayment of bank loans
|
|
|
(6,237,217
|
)
|
|
|
(17,955,561
|
)
|
Payment of capital lease obligation
|
|
|
(72,003
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
2,054,855
|
|
|
|
(5,772,467
|
)
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents
|
|
|
632,315
|
|
|
|
(170,838
|
)
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
|
|
(1,695,308
|
)
|
|
|
(6,279,680
|
)
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and Restricted Cash - Beginning of Year
|
|
|
5,837,745
|
|
|
|
12,117,425
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and Restricted Cash - End of Year
|
|
$
|
4,142,437
|
|
|
$
|
5,837,745
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest cost
|
|
$
|
592,140
|
|
|
$
|
926,368
|
|
Cash paid for income taxes
|
|
$
|
2,401,191
|
|
|
$
|
2,250,546
|
|
|
|
|
|
|
|
|
|
|
Cash and bank balances
|
|
|
4,142,437
|
|
|
|
5,837,745
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
|
4,142,437
|
|
|
|
5,837,745
|
|
See
accompanying notes to consolidated financial statements.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(1)
Organization and Business Background
IT
Tech Packaging, Inc. (the “Company”) was incorporated in the State of Nevada on December 9, 2005, under the name “Carlateral,
Inc.” Through the steps described immediately below, we became the holding company for Hebei Baoding Dongfang Paper Milling
Company Limited (“Dongfang Paper”), a producer and distributor of paper products in China, on October 29, 2007, and
effective December 21, 2007, we changed our name to “Orient Paper, Inc.”.
Effective
on August 1, 2018, we changed our corporate name to IT Tech Packaging, Inc.. The name change was effected through a parent/subsidiary
short-form merger of IT Tech Packaging, Inc., our wholly-owned Nevada subsidiary formed solely for the purpose of the name change,
with and into us. We were the surviving entity. In connection with the name change, our common stock began being traded under
a new NYSE symbol, “ITP,” and a new CUSIP number, 46527C100, at such time.
On
October 29, 2007, pursuant to an agreement and plan of merger (the “Merger Agreement”), the Company acquired Dongfang
Zhiye Holding Limited (“Dongfang Holding”), a corporation formed on November 13, 2006 under the laws of the British
Virgin Islands, and issued the shareholders of Dongfang Holding an aggregate of 7,450,497 (as adjusted for a four-for-one reverse
stock split effected in November 2009) shares of our common stock, which shares were distributed pro-rata to the shareholders
of Dongfang Holding in accordance with their respective ownership interests in Dongfang Holding. At the time of the Merger Agreement,
Dongfang Holding owned all of the issued and outstanding stock and ownership of Dongfang Paper and such shares of Dongfang Paper
were held in trust with Zhenyong Liu, Xiaodong Liu and Shuangxi Zhao, for Mr. Liu, Mr. Liu and Mr. Zhao (the original shareholders
of Dongfang Paper) to exercise control over the disposition of Dongfang Holding’s shares in Dongfang Paper on Dongfang Holding’s
behalf until Dongfang Holding successfully completed the change in registration of Dongfang Paper’s capital with the relevant
PRC Administration of Industry and Commerce as the 100% owner of Dongfang Paper’s shares. As a result of the merger transaction,
Dongfang Holding became a wholly owned subsidiary of the Company, and Dongfang Holding’s wholly owned subsidiary, Dongfang
Paper, became an indirectly owned subsidiary of the Company.
Dongfang
Holding, as the 100% owner of Dongfang Paper, was unable to complete the registration of Dongfang Paper’s capital under
its name within the proper time limits set forth under PRC law. In connection with the consummation of the restructuring transactions
described below, Dongfang Holding directed the trustees to return the shares of Dongfang Paper to their original shareholders,
and the original Dongfang Paper shareholders entered into certain agreements with Baoding Shengde Paper Co., Ltd. (“Baoding
Shengde”) to transfer the control of Dongfang Paper over to Baoding Shengde.
On
June 24, 2009, the Company consummated a number of restructuring transactions pursuant to which it acquired all of the issued
and outstanding shares of Shengde Holdings Inc., a Nevada corporation. Shengde Holdings Inc was incorporated in the State of Nevada
on February 25, 2009. On June 1, 2009, Shengde Holdings Inc incorporated Baoding Shengde, a limited liability company organized
under the laws of the PRC. Because Baoding Shengde is a wholly-owned subsidiary of Shengde Holdings Inc, it is regarded as a wholly
foreign-owned entity under PRC law.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
To
ensure proper compliance of the Company’s control over the ownership and operations of Dongfang Paper with certain PRC regulations,
on June 24, 2009, the Company entered into a series of contractual agreements (the “Contractual Agreements”) with
Dongfang Paper and Dongfang Paper Equity Owners via the Company’s wholly owned subsidiary Shengde Holdings Inc (“Shengde
Holdings”) a Nevada corporation and Baoding Shengde Paper Co., Ltd. (“Baoding Shengde”), a wholly foreign-owned
enterprise in the PRC with an original registered capital of $10,000,000 (subsequently increased to $60,000,000 in June 2010).
Baoding Shengde is mainly engaged in production and distribution of digital photo paper and single-use face masks and is 100%
owned by Shengde Holdings. Prior to February 10, 2010, the Contractual Agreements included (i) Exclusive Technical Service and
Business Consulting Agreement, which generally provides that Baoding Shengde shall provide exclusive technical, business and management
consulting services to Dongfang Paper, in exchange for service fees including a fee equivalent to 80% of Dongfang Paper’s
total annual net profits; (ii) Loan Agreement, which provides that Baoding Shengde will make a loan in the aggregate principal
amount of $10,000,000 to Dongfang Paper Equity Owners in exchange for each such shareholder agreeing to contribute all of its
proceeds from the loan to the registered capital of Dongfang Paper; (iii) Call Option Agreement, which generally provides, among
other things, that Dongfang Paper Equity Owners irrevocably grant to Baoding Shengde an option to purchase all or part of each
owner’s equity interest in Dongfang Paper. The exercise price for the options shall be RMB1 which Baoding Shengde should
pay to each of Dongfang Paper Equity Owner for all their equity interests in Dongfang Paper; (iv) Share Pledge Agreement, which
provides that Dongfang Paper Equity Owners will pledge all of their equity interests in Dongfang Paper to Baoding Shengde as security
for their obligations under the other agreements described in this section. Specifically, Baoding Shengde is entitled to dispose
of the pledged equity interests in the event that Dongfang Paper Equity Owners breach their obligations under the Loan Agreement
or Dongfang Paper fails to pay the service fees to Baoding Shengde pursuant to the Exclusive Technical Service and Business Consulting
Agreement; and (v) Proxy Agreement, which provides that Dongfang Paper Equity Owners shall irrevocably entrust a designee of Baoding
Shengde with such shareholder’s voting rights and the right to represent such shareholder to exercise such owner’s
rights at any equity owners’ meeting of Dongfang Paper or with respect to any equity owner action to be taken in accordance
with the laws and Dongfang Paper’s Articles of Association. The terms of the agreement are binding on the parties for as
long as Dongfang Paper Equity Owners continue to hold any equity interest in Dongfang Paper. An Dongfang Paper Equity Owner will
cease to be a party to the agreement once it transfers its equity interests with the prior approval of Baoding Shengde. As the
Company had controlled Dongfang Paper since July 16, 2007 through Dongfang Holding and the trust until June 24, 2009 and continued
to control Dongfang Paper through Baoding Shengde and the Contractual Agreements, the execution of the Contractual Agreements
is considered as a business combination under common control.
On
February 10, 2010, Baoding Shengde and the Dongfang Paper Equity Owners entered into a Termination of Loan Agreement to terminate
the above-mentioned $10,000,000 Loan Agreement. Because of the Company’s decision to fund future business expansions through
Baoding Shengde instead of Dongfang Paper, the $10,000,000 loan contemplated was never made prior to the point of termination.
The parties believe the termination of the Loan Agreement does not in itself compromise the effective control of the Company over
Dongfang Paper and its businesses in the PRC.
An agreement was also entered into among
Baoding Shengde, Dongfang Paper and the Dongfang Paper Equity Owners on December 31, 2010, reiterating that Baoding Shengde is
entitled to 100% of the distributable profit of Dongfang Paper, pursuant to the above- mentioned Contractual Agreements. In addition,
Dongfang Paper and the Dongfang Paper Equity Owners shall not declare any of Dongfang Paper’s unappropriated earnings as
dividend, including the unappropriated earnings of Dongfang Paper from its establishment to 2010 and thereafter.
On June 25, 2019, Dongfang Paper entered
into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability
company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. Upon full payment of
the consideration in the amount of RMB 320 million (approximately $45 million), Hebei Tengsheng will gain control over substantial
parcels of land that under the possession of Hebei Tengsheng.
The
Company has no direct equity interest in Dongfang Paper. However, through the Contractual Agreements described above, the Company
is found to be the primary beneficiary (the “Primary Beneficiary”) of Dongfang Paper and is deemed to have the effective
control over Dongfang Paper’s activities that most significantly affect its economic performance, resulting in Dongfang
Paper being treated as a controlled variable interest entity of the Company in accordance with Topic 810 - Consolidation of the
Accounting Standards Codification (the “ASC”) issued by the Financial Accounting Standard Board (the “FASB”).
The revenue generated from Dongfang Paper for the years ended December 31, 2020 and 2019 was accounted for 98.91% and 100% of
the Company’s total revenue, respectively. Dongfang Paper also accounted for 90.70% and 91.01% of the total assets of the
Company as of December 31, 2020 and 2019, respectively.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2020, and 2019, details of the Company’s subsidiaries and variable interest entity are as follows:
|
|
Date of
|
|
Place of
|
|
Percentage
|
|
|
|
|
|
Incorporation
|
|
Incorporation or
|
|
of
|
|
|
|
Name
|
|
or Establishment
|
|
Establishment
|
|
Ownership
|
|
|
Principal Activity
|
Subsidiary:
|
|
|
|
|
|
|
|
|
|
Dongfang Holding
|
|
November 13, 2006
|
|
BVI
|
|
|
100
|
%
|
|
Inactive investment holding
|
Shengde Holdings
|
|
February 25, 2009
|
|
State of Nevada
|
|
|
100
|
%
|
|
Investment holding
|
Baoding Shengde
|
|
June 1, 2009
|
|
PRC
|
|
|
100
|
%
|
|
Paper production and distribution
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest entity (“VIE”):
|
|
|
|
|
|
|
|
|
|
|
Dongfang Paper
|
|
March 10, 1996
|
|
PRC
|
|
|
Control*
|
|
|
Paper production and distribution
|
|
*
|
Dongfang Paper is treated as a 100% controlled
variable interest entity of the Company.
|
However,
uncertainties in the PRC legal system could cause the Company’s current ownership structure to be found to be in violation
of any existing and/or future PRC laws or regulations and could limit the Company’s ability, through its subsidiary, to
enforce its rights under these contractual arrangements. Furthermore, shareholders of the VIE may have interests that are different
than those of the Company, which could potentially increase the risk that they would seek to act contrary to the terms of the
aforementioned agreements.
In
addition, if the current structure or any of the contractual arrangements were found to be in violation of any existing or future
PRC law, the Company may be subject to penalties, which may include, but not be limited to, the cancellation or revocation of
the Company’s business and operating licenses, being required to restructure the Company’s operations or being required
to discontinue the Company’s operating activities. The imposition of any of these or other penalties may result in a material
and adverse effect on the Company’s ability to conduct its operations. In such case, the Company may not be able to operate
or control the VIE, which may result in deconsolidation of the VIE. The Company believes the possibility that it will no longer
be able to control and consolidate its VIE will occur as a result of the aforementioned risks and uncertainties is remote.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company has aggregated the financial information of Dongfang Paper in the table below. The aggregate carrying value of Dongfang
Paper’s assets and liabilities (after elimination of intercompany transactions and balances) in the Company’s consolidated
balance sheets as of December 31, 2020, and 2019 are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and bank balances
|
|
$
|
3,315,778
|
|
|
$
|
5,675,374
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable
|
|
|
2,389,057
|
|
|
|
3,119,312
|
|
Inventories
|
|
|
1,223,020
|
|
|
|
1,603,038
|
|
Prepayments and other current assets
|
|
|
7,051,381
|
|
|
|
11,610,576
|
|
Due from related parties
|
|
|
92,795
|
|
|
|
1,863,479
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
14,072,031
|
|
|
|
23,871,779
|
|
|
|
|
|
|
|
|
|
|
Prepayment on property, plant and equipment
|
|
|
19,617,159
|
|
|
|
1,433,445
|
|
Finance lease right-of-use assets, net
|
|
|
2,397,653
|
|
|
|
-
|
|
Property, plant, and equipment, net
|
|
|
133,134,932
|
|
|
|
138,920,440
|
|
Deferred tax asset non-current
|
|
|
12,040,962
|
|
|
|
8,869,385
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
181,262,737
|
|
|
$
|
173,095,049
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
$
|
6,435,348
|
|
|
$
|
6,163,814
|
|
Current portion of long-term loans from credit union
|
|
|
551,733
|
|
|
|
315,358
|
|
Lease liability
|
|
|
182,852
|
|
|
|
-
|
|
Accounts payable
|
|
|
592,391
|
|
|
|
250,486
|
|
Advance from customers
|
|
|
82,625
|
|
|
|
98,311
|
|
Due to related parties
|
|
|
-
|
|
|
|
56,552
|
|
Accrued payroll and employee benefits
|
|
|
221,482
|
|
|
|
287,584
|
|
Other payables and accrued liabilities
|
|
|
4,672,265
|
|
|
|
6,502,974
|
|
Income taxes payable
|
|
|
259,649
|
|
|
|
1,382,471
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
12,998,345
|
|
|
|
15,057,550
|
|
|
|
|
|
|
|
|
|
|
Loans from credit union
|
|
|
4,597,772
|
|
|
|
4,501,018
|
|
Lease liability - non-current
|
|
|
354,107
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
17,950,224
|
|
|
$
|
19,558,568
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company and its consolidated subsidiaries are not required to provide financial support to the VIE, and no creditor (or beneficial
interest holders) of the VIE have recourse to the assets of Company unless the Company separately agrees to be subject to such
claims. There are no terms in any agreements or arrangements, implicit or explicit, which require the Company or its subsidiaries
to provide financial support to the VIE. However, if the VIE does require financial support, the Company or its subsidiaries may,
at its option and subject to statutory limits and restrictions, provide financial support to the VIE.
(2)
Basis of Presentation and Significant Accounting Policies
Basis
of Consolidation
The
consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”), and include the assets, liabilities, revenues, expenses and cash flows of all
subsidiaries and variable interest entity. All significant inter-company balances, transactions and cash flows are eliminated
on consolidation.
Foreign
Currency Translation
The
Company accounts for foreign currency translation pursuant to ASC Topic 830, Foreign Currency Matters. The functional currency
of Dongfang Paper and Baoding Shengde is the Chinese Yuan Renminbi (“RMB”). Monetary assets and liabilities denominated
in currencies other than RMB are translated into RMB at the rates of exchange ruling at the balance sheet date. Transactions in
currencies other than RMB are converted into RMB at the applicable rates of exchange prevailing the transactions occurred. Transaction
gains and losses are recognized in the consolidated statements of income. The functional currency of IT Tech Packaging and Shengde
Holdings is United States dollars. Monetary assets and liabilities denominated in currencies other than United States dollars
are translated into United States dollars at the rates of exchange ruling at the balance sheet date. Translation in currencies
other than United States dollars are converted into United States dollars at the applicable rates of exchange prevailing when
the transactions occurred. Transaction gains or losses are recognized in the consolidated statement of income.
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, 2020, and 2019 to translate the Chinese RMB to the U.S. Dollars are 6.5249:1,
and 6.9762:1, respectively. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective
years at 6.8941:1 and 6.8948:1 for the years ended December 31, 2020, and 2019, respectively. Translation adjustments are included
in other comprehensive income (loss).
Use
of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of December 31, 2020, and 2019, and revenues and expenses for the
years ended December 31, 2020, and 2019. The most significant estimates relate to allowance for uncollectible accounts receivable,
inventory valuation, useful lives and impairment for property, plant and equipment, valuation allowance for deferred tax assets
and contingencies. Actual results could differ from those estimates made by management.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts
Receivable
Trade
accounts receivable are recorded on shipment of products to customers. The trade receivables are all without customer collateral
and interest is not accrued on past due accounts. Periodically, management reviews the adequacy of its provision for doubtful
accounts based on historical bad debt expense results and current economic conditions using factors based on the aging of its
accounts receivable. Additionally, the Company may identify additional allowance requirements based on indications that a specific
customer may be experiencing financial difficulties. Actual bad debt results could differ materially from these estimates. As
of December 31, 2020, and 2019, the balance of allowance for doubtful accounts was $34,391 and $59,922, respectively; and the
movement of the provision of the doubtful accounts is as below. While management uses the best information available upon which
to base estimates, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions
used for the purposes of analysis.
|
|
December 31,
|
|
|
December 31,
|
|
Allowance of doubtful accounts
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
59,922
|
|
|
$
|
58,707
|
|
Provision (Reversal) for the year
|
|
|
(28,087
|
)
|
|
|
2,192
|
|
Exchange difference
|
|
|
2,556
|
|
|
|
(977
|
)
|
|
|
|
|
|
|
|
|
|
Closing balance
|
|
$
|
34,391
|
|
|
$
|
59,922
|
|
Inventories
Inventories
consist principally of raw materials and finished goods, and are stated at the lower of cost (average cost method) or market.
Cost includes labor, raw materials, and allocated overhead. Provision in inventories were $nil and $75,719 for the years ended
December 31, 2020, and 2019, respectively.
Property,
Plant, and Equipment
Property,
plant, and equipment are stated at cost less accumulated depreciation and any impairment losses. Major renewals, betterments,
and improvements are capitalized to the asset accounts while replacements, maintenance, and repairs, which do not improve or extend
the lives of the respective assets, are expensed to operations. At the time property, plant, and equipment are retired or otherwise
disposed of, the asset and related accumulated depreciation or amortization accounts are relieved of the applicable amounts. Gains
or losses from retirements or sales are credited or charged to operations.
Construction-in-progress
is stated at cost and capitalized as expenses are incurred or as payments are made pursuant to relevant construction contracts.
Contract retention is recorded as accrued liability. Construction in progress is not depreciated until project completion and
the constructed property being placed in service, at which time the capitalized balance will be transferred to appropriate account
of property, plant and equipment.
The
Company depreciates property, plant, and equipment using the straight-line method as follows:
Land use right
|
Over the lease term
|
|
|
Building and improvements
|
30 years
|
|
|
Machinery and equipment
|
5-15 years
|
|
|
Vehicles
|
15 years
|
Valuation
of long-lived asset
The
Company reviews the carrying value of long-lived assets to be held and used when events and circumstances warrants such a review.
The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is
separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived asset and intangible assets. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets
and intangible assets to be disposed are determined in a similar manner, except that fair market values are reduced for the cost
to dispose.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Statutory
Reserves
According
to the laws and regulations in the PRC, the Company is required to provide for certain statutory funds, namely, a reserve fund
by an appropriation from net profit after taxation but before dividend distribution based on the local statutory financial statements
of the PRC subsidiary and variable interest entity prepared in accordance with the PRC accounting principles and relevant financial
regulations.
Each
of the Company’s wholly owned subsidiary and variable interest entity in the PRC are required to allocate at least 10% of
its net profit to the reserve fund until the balance of such fund has reached 50% of its registered capital. Appropriations of
additional reserve fund are determined at the discretion of its directors. The reserve fund can only be used, upon approval by
the relevant authority, to offset accumulated losses or increase capital.
For
the years ended December 31, 2020, and 2019, IT Tech Packaging made transfers of $nil to this reserve fund. As a result of net
loss in fiscal year 2019 and 2018 of Baoding Shengde, no statutory reserves were provided for the year ended December 31, 2020,
and 2019. The Company’s variable interest entity Dongfang Paper, the statutory reserve account of which has been fully funded
for 50% of its registered capital in the amount of RMB 75,030,000 (or approximately $11,811,470) since December 31, 2010, did
not make any transfer to statutory reserves during the years ended December 31, 2020, and 2019.
Employee
Benefit Plan
Full
time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance and other welfare benefits are provided to employees. The total
provision for such employee benefits was $nil for the years ended December 31, 2020, and 2019.
Revenue
Recognition
The
Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all subsequent ASUs that modified ASC 606 on
April 1, 2017 using the full retrospective method which requires the Company to present the financial statements for all periods
as if Topic 606 had been applied to all prior periods. The company derives revenue principally from producing and sales of paper
products. Revenue from contracts with customers is recognized using the following five steps:
|
1.
|
Identify the contract(s) with a customer;
|
|
2.
|
Identify the performance obligations in the
contract;
|
|
3.
|
Determine the transaction price;
|
|
4.
|
Allocate the transaction price to the performance
obligations in the contract; and
|
|
5.
|
Recognize revenue when (or as) the entity satisfies
a performance obligation.
|
A
contract contains a promise (or promises) to transfer goods or services to a customer. A performance obligation is a promise (or
a group of promises) that is distinct. The transaction price is the amount of consideration a company expects to be entitled from
a customer in exchange for providing the goods or services.
The unit of account for revenue recognition
is a performance obligation (a good or service). A contract may contain one or more performance obligations. Performance obligations
are accounted for separately if they are distinct. A good or service is distinct if the customer can benefit from the good or service
either on its own or together with other resources that are readily available to the customer, and the good or service is distinct
in the context of the contract. Otherwise, performance obligations are combined with other promised goods or services until the
Company identifies a bundle of goods or services that is distinct. Promises in contracts which do not result in the transfer of
a good or service are not performance obligations, as well as those promises that are administrative in nature, or are immaterial
in the context of the contract. The Company has addressed whether various goods and services promised to the customer represent
distinct performance obligations. The Company applied the guidance of ASC Topic 606-10-25-16 through 18 in order to verify which
promises should be assessed for classification as distinct performance obligations.
The Company’s revenue is primary
derived from sales of paper products. The Company recognizes revenue when goods are delivered, when 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 customer’s truck picks up goods at the Company’s finished
goods inventory warehouse.
Shipping
Cost
Substantially
all customers use their own trucks or hire commercial trucking companies to pick up goods from the Company. The Company usually
incurs no shipping cost for delivery of goods to customers. For those rare situations where products are not shipped utilizing
customer specified shipping services, the Company charges customers a shipping fee which is included in net revenues and was not
material. Freight-in and handling costs incurred by the Company with respect to purchased goods are recorded as a component of
inventory cost and charged to cost of sales when the inventory items are sold.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising
The
Company expenses all advertising and promotion costs as incurred. The Company incurred $nil of advertising and promotion costs
for the years ended December 31, 2020, and 2019.
Research
and development costs
Research
and development costs are expensed as incurred and included in selling, general and administrative expenses. Research and development
expenses incurred $69,208 and $74,825 for the years ended December 31, 2020, and 2019, respectively.
Borrowing
costs
Borrowing
costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period
of time to be ready for their intended use or sale, are capitalized as part of the cost of those assets. Income earned on temporary
investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalized. All
other borrowing costs are recognized in interest expenses in the period in which they are incurred.
Government
subsidies
A government subsidy is not recognized
until there is reasonable assurance that: (a) the enterprise will comply with the conditions attached to the grant; and(b)the grant
will be received. When the Company receives government subsidies but the conditions attached to the grants have not been fulfilled,
such government subsidies are deferred and recorded under other payables and accrued expenses, and other long-term liability. The
classification of short-term or long-term liabilities is depended on the management’s expectation of when the conditions
attached to the grant can be fulfilled. For the years ended December 31, 2020, and 2019, the Company received government subsidies
of $220,478 and $261,136, which are recognized as subsidy income in the consolidated statements of income in that fiscal year.
Income
Taxes
The
Company accounts for income taxes pursuant to ASC Topic 740, Income Taxes. Income taxes are provided on an asset and liability
approach for financial accounting and reporting of income taxes. Any tax paid by subsidiaries during the year is recorded. Current
tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income
tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. ASC Topic
740 also requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the
financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax
losses and tax credit carry-forwards. ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect
the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S.
net operating loss carry-forwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain.
The
Company adopted ASC Topic 740-10-05, Income Tax, which provides guidance for recognizing and measuring uncertain tax positions,
it prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be
recognized in the financial statements. It also provides accounting guidance on derecognizing, classification and disclosure of
these uncertain tax positions.
The
Company’s policy on classification of all interest and penalties related to unrecognized income tax positions, if any, is
to present them as a component of income tax expense.
Value
Added Tax
Both
the PRC subsidiary and variable interest entity of the Company are subject to value added tax (“VAT”) imposed by the
PRC government on its purchase and sales of goods. The output VAT is charged to customers who purchase goods from the Company
and the input VAT is paid when the Company purchases goods from its vendors. VAT rate is 17% (before May 1, 2018), 16% (after
May 1, 2018) and 13% (after April 1, 2019) in general, depending on the types of products purchased and sold. The input VAT can
be offset against the output VAT. Debit balance of VAT payable represents a credit against future collection of output VAT instead
of a receivable due from government.
Comprehensive
Income (Loss)
The
Company presents comprehensive income (loss) in accordance with ASC Topic 220, Comprehensive Income. ASC Topic 220 states
that all items that are required to be recognized under accounting standards as components of comprehensive income (loss) be reported
in the consolidated financial statements. The components of comprehensive income (loss) were the net income for the years and
the foreign currency translation adjustments.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings
Per Share
Basic earnings per share is computed by
dividing the net income attributable to the common stockholders by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased
to include the number of additional common shares that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. There were no potentially dilutive securities that were in-the-money that were
outstanding during the years ended December 31, 2020.
Share-Based
Compensation
The
Company uses the fair value recognition provision of ASC Topic 718, Compensation-Stock Compensation, which requires the
Company to expense the cost of employee services received in exchange for an award of equity instruments based on the grant date
fair value of such instruments over the vesting period.
The
Company also applies the provisions of ASC Topic 505-50, Equity Based Payments to Non-Employees to account for stock-based
compensation awards issued to non-employees for services. Such awards for services are recorded at either the fair value of the
consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.
Fair
Value Measurements
The
Company has adopted ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair
value measurement, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify
the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable
and unobservable inputs, which may be used to measure fair value and include the following:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
Classification
within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.
The
Company estimates the fair value of financial instruments using the available market information and valuation methods. Considerable
judgment is required in estimating fair value. Accordingly, the estimates of fair value may not be indicative of the amounts that
the Company could realize in a current market exchange. As of December 31, 2020, and 2019, the carrying value of the Company’s
short term financial instruments, such as cash and bank balances, accounts receivable, accounts and notes payable, short-term
bank loans and balance due to related parties, approximate at their fair values because of the short maturity of these instruments;
while loans from credit union approximates at their fair value as the interest rates thereon are close to the market rates of
interest published by the People’s Bank of China.
Derivative liabilities are measured at fair value on a recurring
basis.
Non-Recurring
Fair Value Measurements
The Company reviews long-lived assets for
impairment annually or more frequently if events or changes in circumstances indicate the possibility of impairment. For the continuing
operations, long-lived assets are measured at fair value on a nonrecurring basis when there is an indicator of impairment, and
they are recorded at fair value only when impairment is recognized. For discontinued operations, long-lived assets are measured
at the lower of carrying amount or fair value less cost to sell. The fair value of these assets was determined using models with
significant unobservable inputs which were classified as Level 3 inputs, primarily the discounted future cash flow.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(3)
Restricted Cash
Restricted
cash was nil as of December 31, 2020 and 2019.
(4)
Inventories
Raw
materials inventory includes mainly recycled paper and coal. Finished goods include mainly products of corrugating medium paper
and offset printing paper. Inventories consisted of the following as of and December 31, 2020, and 2019:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw Materials
|
|
|
|
|
|
|
Recycled paper board
|
|
$
|
19,459
|
|
|
$
|
40,032
|
|
Recycled white scrap paper
|
|
|
11,193
|
|
|
|
10,541
|
|
Gas
|
|
|
55,473
|
|
|
|
41,675
|
|
Base paper and other raw materials
|
|
|
181,426
|
|
|
|
293,935
|
|
|
|
|
267,551
|
|
|
|
386,183
|
|
Semi-finished Goods
|
|
|
176,703
|
|
|
|
83,266
|
|
Finished Goods
|
|
|
789,547
|
|
|
|
1,212,849
|
|
Total inventory, gross
|
|
|
1,233,801
|
|
|
|
1,682,298
|
|
Inventory reserve
|
|
|
-
|
|
|
|
(74,835
|
)
|
Total inventory, net
|
|
$
|
1,233,801
|
|
|
$
|
1,607,463
|
|
(5)
Prepayments and other current assets
Prepayments
and other current assets consisted of the following as of December 31, 2020, and 2019:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Prepaid land lease
|
|
$
|
183,912
|
|
|
$
|
301,023
|
|
Prepayment for purchase of materials
|
|
|
10,945
|
|
|
|
5,394,297
|
|
Value-added tax recoverable
|
|
|
5,864,989
|
|
|
|
5,666,975
|
|
Others
|
|
|
991,669
|
|
|
|
250,946
|
|
|
|
$
|
7,051,515
|
|
|
$
|
11,613,241
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(6)
Property, plant and equipment
As
of December 31, 2020, and 2019, property, plant and equipment consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Property, Plant, and Equipment:
|
|
|
|
|
|
|
Land use rights
|
|
$
|
12,497,601
|
|
|
$
|
11,689,114
|
|
Building and improvements
|
|
|
81,233,162
|
|
|
|
70,811,803
|
|
Machinery and equipment
|
|
|
163,787,807
|
|
|
|
152,954,020
|
|
Vehicles
|
|
|
628,462
|
|
|
|
587,806
|
|
Construction in progress
|
|
|
586,216
|
|
|
|
6,399,986
|
|
Totals
|
|
|
258,733,248
|
|
|
|
242,442,729
|
|
Less: accumulated depreciation and amortization
|
|
|
(113,590,606
|
)
|
|
|
(90,825,877
|
)
|
Property, Plant and Equipment, net
|
|
$
|
145,142,642
|
|
|
$
|
151,616,852
|
|
As of December 31, 2020, and December 31,
2019, land use rights represented two parcel of state-owned lands located in Xushui District of Hebei Province in China, with lease
terms of 50 years expiring from 2061 to 2066.
Construction
in progress mainly represents payments for paper machine of a new tissue paper production line PM10 and improvement of the office
building and essentially all industrial-use buildings in the Headquarters Compound.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2020, and 2019, certain property, plant and equipment of Dongfang Paper with net values of $2,349,796 and $3,935,270,
respectively, have been pledged pursuant to a long-term loan from credit union of Dongfang Paper. Land use right of Dongfang Paper
with net values of $6,010,359 and $5,757,546, respectively, as of December 31, 2020 and 2019 was pledged for the bank loan from
Bank of Industrial & Commercial Bank of China. Land use right of Hebei Tengsheng with net value of $5,560,146 and $5,200,452,
respectively, as of December 31, 2020 and 2019 was pledged for a long-term loan from credit union of Baoding Shengde. In addition,
land use right of Hebei Tengsheng with net value of $8,614,194 and $8,056,930, respectively, as of December 31, 2020 and 2019
was pledged for another long-term loan from credit union of Baoding Shengde. See ” Short-term bank loans ”
under Note (7), Loans Payable, for details of the transaction and asset collaterals.
Depreciation
and amortization of property, plant and equipment was $15,793,854 and $15,304,039 for the years ended December 31, 2020, and 2019,
respectively. No Impairment loss was recorded for the years ended December 31, 2020, and 2019.
(7)
Financing with Sale-Leaseback
The
Company entered into a sale-leaseback arrangement (the “Lease Financing Agreement”) with TAC Leasing Co.,
Ltd.(“TLCL”) on August 6, 2020, for a total financing proceeds in the amount of RMB 16 million (approximately
US$2.5 million). Under the sale-leaseback arrangement, Hebei Tengsheng sold the Leased Equipment to TLCL for 16 million
(approximately US$2.5 million). Concurrent with the sale of equipment, Hebei Tengsheng leases back the equipment sold to TLCL
for a lease term of three years. At the end of the lease term, Hebei Tengsheng may pay a nominal purchase price of RMB 100
(approximately $15) to TLCL and buy back the Leased Equipment. The Leased Equipment in amount of $2,349,452 was recorded as
right of use assets and the net present value of the minimum lease payments was recorded as lease liability and calculated
with TLCL’s implicit interest rate of15.6% per annum and stated at $567,099 at the inception of the lease on August 17,
2020.
Hebei Tengsheng made payments due according
to the schedule. As of December 31, 2020, the balance of Leased Equipment net of amortization was $2,397,653. The lease liability
was $536,959 and its current portion in the amount of $182,852 as of December 31, 2020.Amortization of the Leased Equipment was
$51,574 for the year ended December 31, 2020. Total interest expense for the sale lease back arrangement was $28,083 for the year
ended December 31, 2020.
As
a result of the sale and leaseback, a deferred gain in the amount of $430,695 was recorded. The deferred gain is amortized over
the lease term and as an offset to amortization of the Leased Equipment.
The
future minimum lease payments of the capital lease as of December 31, 2020 were as follows:
December 31,
|
|
Amount
|
|
2021
|
|
|
253,797
|
|
2022
|
|
|
253,797
|
|
2023
|
|
|
148,048
|
|
Less: unearned discount
|
|
|
(118,683
|
)
|
|
|
|
536,959
|
|
Less: Current portion lease liability
|
|
|
(182,852
|
)
|
|
|
$
|
354,107
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(8)
Loans Payable
Short-term
bank loans
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Industrial and Commercial Bank of China (“ICBC”) Loan 1
|
|
$
|
-
|
|
|
$
|
6,163,814
|
|
Industrial and Commercial Bank of China (“ICBC”) Loan 2
|
|
|
6,435,348
|
|
|
|
-
|
|
Total short-term bank loans
|
|
$
|
6,435,348
|
|
|
$
|
6,163,814
|
|
|
(c)
|
On December 20,
2019, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,163,814 as of December
31, 2019. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the
bank. The loan bears a fixed interest rate of 4.785% per annum. The loan was repaid on December 14, 2020.
|
|
(d)
|
On December 11,
2020, the Company entered into a working capital loan agreement with the ICBC, with a balance of $6,435,348 as of December
31, 2020. The working capital loan was secured by the Land use right of Dongfang Paper as collateral for the benefit of the
bank. The loan bears a fixed interest rate of 4.785% per annum. The loan will be due and repaid at various installments by
December 7, 2021.
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2020, there were guaranteed short-term borrowings of $6,435,348 and unsecured bank loans of $nil. As of December
31, 2019, there were guaranteed short-term borrowings of $6,163,814 and unsecured bank loans of $nil.
The
average short-term borrowing rates for the years ended December 31, 2020, and 2019 were approximately 4.79% and 4.93%, respectively.
Long-term
loans from credit union
As
of December 31, 2020, and 2019, loans payable to Rural Credit Union of Xushui County, amounted to $9,594,017 and $8,973,367, respectively.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Rural Credit Union of Xushui District Loan 1
|
|
$
|
1,318,028
|
|
|
$
|
1,232,763
|
|
Rural Credit Union of Xushui District Loan 2
|
|
|
3,831,476
|
|
|
|
3,583,613
|
|
Rural Credit Union of Xushui District Loan 3
|
|
|
2,452,145
|
|
|
|
2,293,512
|
|
Rural Credit Union of Xushui District Loan 4
|
|
|
1,992,368
|
|
|
|
1,863,479
|
|
Total
|
|
|
9,594,017
|
|
|
|
8,973,367
|
|
Less: Current portion of long-term loans from credit union
|
|
|
(4,996,245
|
)
|
|
|
(1,605,459
|
)
|
Long-term loans from credit union
|
|
$
|
4,597,772
|
|
|
$
|
7,367,908
|
|
As
of Dec 31, 2020, the Company’s long-term debt repayments for the next five years were as follows:
|
|
Amount
|
|
Fiscal year
|
|
|
|
|
|
|
|
2021
|
|
$
|
4,996,245
|
|
2022
|
|
|
1,685,850
|
|
2023
|
|
|
2,911,922
|
|
Total
|
|
|
9,594,017
|
|
On
April 16, 2014, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years,
which was originally due in various installments from June 21, 2014 to November 18, 2018. The loan is guaranteed by an independent
third party. Interest payment is due quarterly and bears the rate of 0.64% per month. On November 6, 2018, the loan was renewed
for additional 5 years and will be due and payable in various installments from December 21, 2018 to November 5, 2023. As of December
31, 2020, and 2019, total outstanding loan balance was $1,318,028 and $1,232,763, respectively, Out of the total outstanding loan
balance, current portion amounted were $214,563 and $143,345 as of December 31, 2020, and 2019, respectively, which are presented
as current liabilities in the consolidated balance sheet and the remaining balance of $1,103,465 and $1,089,418 are presented
as non-current liabilities in the consolidated balance sheet as of December 31, 2020, and 2019, respectively.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
July 15, 2013, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 5 years,
which was originally due and payable in various installments from December 21, 2013 to July 26, 2018. On June 21, 2018, the loan
was extended for additional 5 years and will be due and payable in various installments from December 21, 2018 to June 20, 2023.
The loan is secured by certain of the Company’s manufacturing equipment with net book value of $2,349,796 and $3,935,270
as of December 31, 2020, and 2019, respectively. Interest payment is due quarterly and bears a fixed rate of 0.64% per month.
As of December 31, 2020, and 2019, the total outstanding loan balance was $3,831,476 and $3,583,613, respectively. Out of the
total outstanding loan balance, current portion amounted were $337,169 and $172,013 as of December 31, 2020, and 2019 respectively,
which are presented as current liabilities in the consolidated balance sheet and the remaining balance of $3,494,307 and $3,411,600
are presented as non-current liabilities in the consolidated balance sheet as of December 31, 2020, and 2019, respectively.
On April 17, 2019, the Company entered
into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years, which was due and payable in various
installments from August 21, 2019 to April 16, 2021. The loan is secured by Hebei Tengsheng with its land use right as collateral
for the benefit of the credit union. Interest payment is due quarterly and bears a fixed rate of 0.6% per month. As of December
31, 2020, and 2019, the total outstanding loan balance was $2,452,145 and $2,293,512, respectively. Out of the total outstanding
loan balance, current portion amounted were $2,452,145 and $1,146,756 as of December 31, 2020 and 2019, respectively, which are
presented as current liabilities in the consolidated balance sheet and the remaining balance of $nil and $1,146,756 are presented
as non-current liabilities in the consolidated balance sheet as of December 31, 2020 and 2019, respectively.
On
December 12, 2019, the Company entered into a loan agreement with the Rural Credit Union of Xushui District for a term of 2 years,
which is due and payable in various installments from June 21, 2020 to December 11, 2021. The loan is secured by Hebei Tengsheng
with its land use right as collateral for the benefit of the credit union. Interest payment is due monthly and bears a fixed rate
of 7.56% per annum. As of December 31, 2020, and 2019, the total outstanding loan balance was $1,992,368 and $1,863,479, respectively.
Out of the total outstanding loan balance, current portion amounted were $1,992,368 and $143,345 as of December 31, 2020, and
2019, respectively, which are presented as current liabilities in the consolidated balance sheet and the remaining balance of
$nil and $1,720,134 are presented as non-current liabilities in the consolidated balance sheet as of December 31, 2020, and 2019,
respectively.
Total
interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2020, and 2019 were $695,287
and $831,732, respectively.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(9)
Related Party Transactions
Mr.
Zhenyong Liu, the Company’s CEO has loaned money to Dongfang Paper for working capital purposes over a period of time. On
January 1, 2013, Dongfang Paper and Mr. Zhenyong Liu renewed the three-year term loan previously entered on January 1, 2010, and
extended the maturity date further to December 31, 2015. On December 31, 2015, the Company paid off the loan of $2,249,279, together
with interest of $391,374 for the period from 2013 to 2015. Approximately $392,855 and $367,441 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, 2020, and 2019, 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, 2020, and 2019, approximately $45,978 and $43,003
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 31, 2020, and 2019, the outstanding interest was $210,635 and $197,009,
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, 2020, and 2019, total amount of loans due to Mr. Zhenyong Liu were $nil. The interest expense incurred for such
related party loans are $nil and $94,636 for the years ended December 31, 2020, and 2019, respectively. The accrued interest owe
to the CEO was approximately $649,468 and $607,453, as of December 31, 2020, and 2019, respectively, which was recorded in other
payables and accrued liabilities.
As
of December 31, 2020, and 2019, amount due to shareholder are $727,433 and $483,433, respectively, which represents funds from
shareholders to pay for various expenses incurred in the U.S. The amount is due on demand with interest free.
Sale
of Headquarters Compound Real Properties to a Related Party
On
August 7, 2013, the Company’s Audit Committee and the Board of Directors approved the sale of the land use right of the
Headquarters Compound (the “LUR”), the office building and essentially all industrial-use buildings in the Headquarters
Compound (the “Industrial Buildings”), and three employee dormitory buildings located within the Headquarters Compound
(the “Dormitories”) to Hebei Fangsheng for cash prices of approximately $2.77 million, $1.15 million, and $4.31 million
respectively. Sales of the LUR and the Industrial Buildings were completed in year 2013.
In
connection with the sale of the Industrial Buildings, Hebei Fangsheng agreed to lease the Industrial Buildings back to the Company
for its original use for a term of up to three years, with an annual rental payment of approximately $145,052 (RMB1,000,000).
The lease agreement expired in August 2016. On August 6, 2016 and August 6, 2018, the Company entered into two supplementary agreements
with Hebei Fangsheng, who agreed to extend the lease term for another four years in total, with the same rental payment as original
lease agreement.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(10)
Other payables and accrued liabilities
Other
payables and accrued liabilities consist of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued electricity
|
|
$
|
14,544
|
|
|
$
|
129,466
|
|
Value-added tax payable
|
|
|
428,481
|
|
|
|
854,728
|
|
Accrued interest to a related party
|
|
|
649,468
|
|
|
|
607,453
|
|
Payable for purchase of equipment
|
|
|
3,262,153
|
|
|
|
3,936,047
|
|
Accrued commission to salesmen
|
|
|
10,917
|
|
|
|
17,162
|
|
Accrued bank loan interest
|
|
|
429,279
|
|
|
|
-
|
|
Others
|
|
|
43,759
|
|
|
|
958,154
|
|
Totals
|
|
$
|
4,838,601
|
|
|
$
|
6,503,010
|
|
(11)
Derivative Liabilities
The
Company analyzed the warrant for derivative accounting consideration under ASC 815, “Derivatives and Hedging, and hedging,”
and determined that the instrument should be classified as a liability since the warrant becomes effective at issuance resulting
in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
ASC
815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change
in the fair market value as other income or expense item.
The
Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model
to calculate the fair value as of December 31, 2020. The Black-Scholes model requires six basic data inputs: the exercise or strike
price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in
the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement.
The fair value of each warrant is estimated using the Black-Scholes valuation model. The following weighted-average assumptions
were used in the December 31, 2020:
|
|
Year ended
December 31,
|
|
|
2020
|
Expected term
|
|
2.42 - 2.75
|
Expected average volatility
|
|
85% - 92%
|
Expected dividend yield
|
|
-
|
Risk-free interest rate
|
|
0.17% - 0.24%
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the changes in the derivative liabilities during the year ended December 31, 2020:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
Balance at December 31, 2019
|
|
$
|
-
|
|
Addition of new derivatives recognized as warrant
|
|
|
689,205
|
|
Addition of new derivatives recognized as loss on derivatives
|
|
|
306,215
|
|
Change in fair value of derivative liability
|
|
|
119,840
|
|
Balance at December 31, 2020
|
|
$
|
1,115,260
|
|
The
following table summarizes the loss on derivative liability included in the income statement for the year ended December 31, 2020
and 2019, respectively.
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Day one loss due to derivative liabilities as warrant
|
|
$
|
306,215
|
|
|
$
|
-
|
|
Loss on change in fair value of derivative liability
|
|
|
119,840
|
|
|
|
-
|
|
|
|
|
426,055
|
|
|
|
-
|
|
(12)
Common Stock
Issuance
of common stock to investors
On August 27, 2014, the Company issued 1,562,500
shares of our common stock and warrants to purchase up to 781,250 shares of our common stock.Each share of common stock and accompanying
warrant was sold at a price of $1.60.
On April 29, 2020, the Company and certain institutional
investors entered into a securities purchase agreement, as amended on May 4, 2020 (the “2020 Purchase Agreement”), pursuant
to which the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock in a registered direct offering
and warrants to purchase up to 4,400,000 shares of the Company’s common stock in a concurrent private placement, for gross proceeds
of approximately $2.55 million (net proceeds of approximately $2.27 million). The purchase price for each share of Common Stock and the
corresponding warrant was $0.7425.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Issuance
of common stock pursuant to the 2012 Incentive Stock Plan, 2015 Omnibus Equity Incentive and 2019 Omnibus Equity Incentive
On
January 12, 2016, the Company granted an aggregate of 1,133,916 shares of common stock under its compensatory incentive plans
to nine officers, directors and employees of and a consultant when the stock was at $1.25 per share, as compensation for their
services in the past years, of which 168,416 shares of common stock were granted under the 2012 Incentive Stock Plan and 965,500
shares were granted under the 2015 Omnibus Equity Incentive. Please see Note (14), Stock Incentive Plans for more details. Total
fair value of the stock was calculated at $1,417,395 as of the date of grant.
On
September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock at $0.88 per share to fifteen
officers, directors and employees of the Company, which were granted under the 2015 Omnibus Equity Incentive Plan. Total fair
value of the shares of common stock granted was calculated at $470,360 as of the date of issuance.
On
April 2, 2020, the compensation committee granted an aggregate of 2,000,000 shares of restricted common stock to fifteen officers,
directors and employees of the Company, which were granted under the 2019 Omnibus Equity Incentive Plan. Total fair value of the
shares of common stock granted was calculated at $1,200,000 as of the date of issuance at $0.60 per share.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Issuance
of common stock to a consultant
On
January 2, 2020, the Company entered into an agreement with a consultant and agreed as compensation to issue to the consultant
in the aggregate of 60,000 shares of common stock for merger and acquisition consulting service rendered from January 2, 2020
to January 2, 2021. 60,000 shares of common stock were issued to this consultant on April 28, 2020. Total fair value of the shares
of common stock issued was calculated at $42,000 at $0.70 per share.
Issuance
of common stock to a consultant
On
November 2, 2020, the Company entered an agreement with a consultant and agreed as compensation to issue to the consultant in
the aggregate of 21,000 shares of common stock for investor relations consulting service rendered from November 2, 2020 to November
2, 2021. 21,000 shares of common stock were issued to this consultant on November 30, 2020. Total fair value of the shares of
common stock issued was calculated at $14,700 at $0.7 per share.
(13)
Warrants
Pursuant
to the 2020 Purchase Agreement, the Company agreed to sell to such investors an aggregate of 4,400,000 shares of common stock
and warrants to purchase up to 4,400,000 shares of the Common Stock in a concurrent private placement. The exercise price of the
warrant is $0.7425 per share. These warrants are exercisable on November 4, 2020 and have a term of exercise equal to five years
and six months from the date of issuance till November 4, 2025. The Company classified warrant as liabilities and accounted for
the issuance of the Warrants as a derivative.
A
summary of stock warrant activities is as below:
|
|
Year Ended
|
|
|
|
December 31,
2020
|
|
|
|
|
|
|
Weight
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
|
Number
|
|
|
price
|
|
Outstanding and exercisable at beginning of the period
|
|
|
|
|
|
|
Issued during the period
|
|
|
4,400,000
|
|
|
$
|
0.7425
|
|
Exercised during the period
|
|
|
-
|
|
|
|
-
|
|
Cancelled or expired during the period
|
|
|
-
|
|
|
|
-
|
|
Outstanding and exercisable at end of the period
|
|
|
4,400,000
|
|
|
$
|
0.7425
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2020.
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Number
of
|
|
|
Contractual
life
|
|
|
Exercise
|
|
|
Number
of
|
|
|
Exercise
|
|
Shares
|
|
|
(in
years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
4,400,000
|
|
|
|
4.84
|
|
|
$
|
0.7425
|
|
|
|
4,400,000
|
|
|
$
|
0.7425
|
|
Aggregate
intrinsic value is the sum of the amounts by which the quoted market price of the Company’s stock exceeded the exercise
price of the warrants at December 31, 2020 for those warrants for which the quoted market price was in excess of the exercise
price (“in-the-money” warrants). There is no intrinsic value of the warrants as of December 31, 2020.
(14)
Earnings Per Share
For
the years ended December 31, 2020, and 2019, basic and diluted net income per share are calculated as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Basic (loss) income per share
|
|
|
|
|
|
|
Net (loss) income for the year - numerator
|
|
$
|
(5,554,002
|
)
|
|
$
|
2,221,182
|
|
Weighted average common stock outstanding - denominator
|
|
|
26,498,298
|
|
|
|
22,034,905
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share
|
|
$
|
(0.21
|
)
|
|
$
|
0.101
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share
|
|
|
|
|
|
|
|
|
Net (loss) income for the year - numerator
|
|
$
|
(5,554,002
|
)
|
|
$
|
2,221,182
|
|
Weighted average common stock outstanding - denominator
|
|
|
26,498,298
|
|
|
|
22,034,905
|
|
|
|
|
|
|
|
|
|
|
Effect of dilution
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - denominator
|
|
|
26,498,298
|
|
|
|
22,034,905
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share
|
|
$
|
(0.21
|
)
|
|
$
|
0.101
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(15)
Income Taxes
United
States
The
Company and Shengde Holdings are incorporated in the State of Nevada and are subject to the U.S. federal tax and state
statutory tax rates up to 34% and 0%, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the
“2017 TCJA Act”), which significantly changed U.S. tax law. The Act 2017 TCJA lowered the Company’s U.S.
statutory federal income tax rate from the highest rate of 35% to 21% effective January 1, 2018, while also imposing a deemed
repatriation tax on deferred foreign income which requires companies to pay a one-time transition tax on previously
unremitted earnings of non-U.S. subsidiaries that were previously tax deferred and creates new taxes on certain foreign
sourced earnings. The SEC staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for
enactment effects of the 2017 TCJA. SAB 118 provides a measurement period of up to one year from the 2017 TCJA’s
enactment date for companies to complete their accounting under ASC 740. In accordance with SAB 118, to the extent that a
company’s accounting for certain income tax effects of the 2017 TCJA is incomplete but it is able to determine a
reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a
provisional estimate to be included in its financial statements, it should continue to apply ASC 740 on the basis of the
provisions of the tax laws that were in effect immediately before the enactment of the 2017 TCJA.
Transition
tax: The transition tax is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of the
Company’s non-U.S. subsidiaries. To determine the amount of the transition tax, the Company must determine, in addition
to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes
paid on such earnings. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified
assets. The Company was able to make a reasonable estimate of the transition tax and recorded a provisional obligation and additional
income tax expense of approximately $80,000 in the fourth quarter of 2017. However, the Company is continuing to gather additional
information and will consider additional technical guidance to more precisely compute and account for the amount of the transition
tax. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S.
federal taxation and finalizes the amounts held in cash or other specified assets. The 2017 TCJA’s transition tax is payable
over eight years beginning in 2018.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
PRC
Dongfang
Paper and Baoding Shengde are PRC operating companies and are subject to PRC Enterprise Income Tax. Pursuant to the PRC New Enterprise
Income Tax Law, Enterprise Income Tax is generally imposed at a statutory rate of 25%.
The
provisions for income taxes for the years ended December 31, 2020, and 2019 were as follows:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Provision for Income Taxes
|
|
|
|
|
|
|
Current Tax Provision U.S.
|
|
$
|
14,747
|
|
|
$
|
14,747
|
|
Current Tax Provision PRC
|
|
|
1,247,970
|
|
|
|
3,431,038
|
|
Deferred Tax Provision PRC
|
|
|
(2,364,575
|
)
|
|
|
(2,369,683
|
)
|
Total Provision for (Deferred tax benefit)/ Income Taxes
|
|
$
|
(1,101,858
|
)
|
|
$
|
1,076,102
|
|
In addition to the reversible future PRC income tax
benefits stemming from the timing differences of items such as recognition of asset disposal gain or loss and asset depreciation, the
Company was incorporated in the United States and incurred net operating losses of approximately $2,508,797 and $0 for U.S. income tax
purposes for the years ended December 31, 2020 and 2019, respectively. The net operating loss carried forward may be available to reduce
future years’ taxable income. These carry forwards would expire, if not utilized, during the period of 2030 through 2035. As of
December 31, 2020, management believed that the realization of all the U.S. income tax benefits from these losses, which generally would
generate a deferred tax asset if it can be expected to be utilized in the future, appears not more than likely due to the Company’s
limited operating history and continuing losses for United States income tax purposes. Accordingly, As of December 31, 2020, the Company
provided a 100% valuation allowance on the U.S. deferred tax asset benefit to reduce the total deferred tax asset to the amount realizable
for the PRC income tax purposes. Management reviews this valuation allowance periodically and will make adjustments as warranted. A summary
of the otherwise deductible (or taxable) deferred tax items is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment
|
|
$
|
12,397,323
|
|
|
$
|
9,277,009
|
|
Impairment of property, plant and equipment
|
|
|
680,800
|
|
|
|
521,803
|
|
Miscellaneous
|
|
|
258,963
|
|
|
|
277,511
|
|
Net operating loss carryover of PRC company
|
|
|
371,544
|
|
|
|
408,730
|
|
Total deferred tax assets
|
|
|
13,708,630
|
|
|
|
10,485,053
|
|
Less: Valuation allowance
|
|
|
|
|
|
|
-
|
|
Total deferred tax assets, net
|
|
$
|
13,708,630
|
|
|
|
10,485,053
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table reconciles the statutory rates to the Company’s effective tax rate as of:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
PRC Statutory rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Effect of different tax jurisdiction
|
|
|
-
|
|
|
|
-
|
|
Effect of expenses not deductible for PRC tax purposes
|
|
|
(5.6
|
)%
|
|
|
23.4
|
%
|
(Over) Under-provision in previous year
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
--
|
|
|
|
-
|
|
Effective income tax rate
|
|
|
19.4
|
%
|
|
|
48.4
|
%
|
During the years ended December 31, 2020, and 2019, the effective
income tax rate was estimated by the Company to be 19.4% and 48.4%, respectively.
As of December 31, 2017, except for the one-time transition
tax under the 2017 TCJA which imposes a U.S. tax liability on all unrepatriated foreign E&Ps, the Company does not believe that its
future dividend policy and the available U.S. tax deductions and net operating losses will cause the Company to recognize any other substantial
current U.S. federal or state corporate income tax liability in the near future. Nor does it believe that the amount of the repatriation
of the VIE’s earnings and profits for purposes of paying dividends will change the Company’s position that its PRC subsidiary
Baoding Shengde and the VIE, Dongfang Paper are considered or are expected to be indefinitely reinvested offshore to support our future
capacity expansion. If these earnings are repatriated to the U.S. resulting in U.S. taxable income in the future, or if it is determined
that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required.
The
Company has adopted ASC Topic 740-10-05, Income Taxes. To date, the adoption of this interpretation has not impacted the Company’s
financial position, results of operations, or cash flows. The Company performed self-assessment and the Company’s liability
for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still
subject to review by taxing authorities. Audit periods remain open for review until the statute of limitations has passed, which
in the PRC is usually 5 years. The completion of review or the expiration of the statute of limitations for a given audit period
could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the
Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations
for the given period. As of December 31, 2020and 2019, management considered that the Company had no uncertain tax positions affecting
its consolidated financial position and results of operations or cash flows, and will continue to evaluate for any uncertain position
in future. There are no estimated interest costs and penalties provided in the Company’s consolidated financial statements
for the years ended December 31, 2020and 2019, respectively. The Company’s tax positions related to open tax years are subject
to examination by the relevant tax authorities and the major one is the China Tax Authority.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(16)
Stock Incentive Plans
Issuance
of common stock pursuant to the 2011 Incentive Stock Plan and 2012 Incentive Stock Plan
On
August 28, 2011, the Company’s Annual General Meeting approved the 2011 Incentive Stock Plan of IT Tech Packaging, Inc.
(the “2011 ISP”) as previously adopted by the Board of Directors on July 5, 2011. Under the 2011 ISP, the Company
may grant an aggregate of 375,000 shares of the Company’s common stock to the Company’s directors, officers, employees
or consultants. No stock or option was issued under the 2011 ISP until January 2, 2012, when the Compensation Committee granted
109,584 shares of restricted common stock to certain officers and directors of the Company when the stock was at $3.45 per share,
as compensation for their services in the past years. Total fair value of the stock was calculated at $378,065 as of the date
of issuance.
On
September 10, 2012, the Company’s Annual General Meeting approved the 2012 Incentive Stock Plan of IT Tech Packaging, Inc.
(the “2012 ISP”) as previously adopted by the Board of Directors on July 4, 2012. Under the 2012 ISP, the Company
may grant an aggregate of 200,000 shares of the Company’s common stock to the Company’s directors, officers, employees
or consultants. Specifically, the Board and/or the Compensation Committee have authority to (a) grant, in its discretion, Incentive
Stock Options or Non-statutory Options, Stock Awards or Restricted Stock Purchase Offers; (b) determine in good faith the fair
market value of the stock covered by any grant; (c) determine which eligible persons shall receive grants and the number of shares,
restrictions, terms and conditions to be included in such grants; and (d) make all other determinations necessary or advisable
for the 2012 ISP’s administration. On December 31, 2013, the Compensation Committee granted restricted common shares of
297,000, out of which 265,416 shares were granted under the 2011 ISP and 31,584 shares under the 2012 ISP, to certain officers,
directors and employees of the Company when the stock was at $2.66 per share, as compensation for their services in the past years.
Total fair value of the stock was calculated at $790,020 as of the date of grant.
2015
Incentive Stock Plan
On
August 29, 2015, the Company’s Annual General Meeting approved the 2015 Omnibus Equity Incentive Plan of IT Tech Packaging,
Inc. (the “2015 ISP”) as previously adopted by the Board of Directors on July 10, 2015. Under the 2015 ISP, the Company
may grant an aggregate of 1,500,000 shares of the Company’s common stock to the directors, officers, employees and/or consultants
of the Company and its subsidiaries. On January 12, 2016, the Compensation Committee granted restricted common shares of 1,133,916,
of which 168,416 shares were granted under the 2012 ISP and 965,500 shares under the 2015 ISP, to certain officers, directors,
employees and a consultant of the Company as compensation for their services in the past years. Total fair value of the stock
was calculated at $1,417,395 as of the date of issuance at $1.25 per share.
On
September 13, 2018, the compensation committee granted an aggregate of 534,500 shares of common stock to fifteen officers, directors
and employees of the Company, which were granted under the 2015 ISP. Total fair value of the shares of common stock granted was
calculated at $470,360 as of the date of issuance at $0.88 per share.
2019
Incentive Stock Plan
On
October 31, 2019, the shareholders of the Company at the Company’s Annual Shareholders General Meeting adopted and approved
the 2019 Omnibus Equity Incentive Plan of IT Tech Packaging, Inc. (the “2019 ISP”). Under the 2019 ISP, the Company
has reserved a total of 2,000,000 shares of common stock for issuance as or under awards to be made to the directors, officers,
employees and/or consultants of the Company and its subsidiaries. On April 2, 2020, 2,000,000 shares of common stock were granted
under the 2019 ISP. Total fair value of the shares of common stock granted was calculated at $1,200,000 as of the date of issuance
at $0.60 per share.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(17)
Commitments and Contingencies
Operating
Lease
The
Company leases 32.95 acres of land from a local government in Xushui District, Baoding City, Hebei, China through a real estate
lease with a 30-year term, which expires on December 31, 2031. The lease requires an annual rental payment of approximately $17,406
(RMB120,000). This operating lease is renewable at the end of the 30-year term.
As
mentioned in Note (8) Related Party Transactions, in connection with the sale of Industrial Buildings to Hebei Fangsheng, Hebei
Fangsheng agrees to lease the Industrial Buildings back to the Company at an annual rental of $145,052 (RMB1,000,000), for a total
term of up to five years.
Future
minimum lease payments are as follows:
December 31,
|
|
Amount
|
|
2021
|
|
|
78,855
|
|
2022
|
|
|
107,792
|
|
2023
|
|
|
18,391
|
|
2024
|
|
|
18,391
|
|
2025
|
|
|
18,391
|
|
Thereafter
|
|
|
110,347
|
|
Total operating lease payments
|
|
$
|
352,167
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Capital
commitment
As
of December 31, 2020, the Company has entered into several contracts for the purchase of paper machine of a new tissue paper production
line PM10 and the improvement of Industrial Buildings. Total outstanding commitments under these contracts were $4,570,331 and
$1,101,989 as of December 31, 2020 and 2019, respectively. The Company expected to pay off all the balances within 1-3 years.
On June 25, 2019, Dongfang Paper entered
into an acquisition agreement with shareholder of Hebei Tengsheng Paper Co., Ltd. (“Hebei Tengsheng”), a limited liability
company organized under the laws of the PRC, pursuant to which Dongfang Paper will acquire Hebei Tengsheng. The consideration for
the acquisition is RMB320 million (approximately $49 million), of which $20 million was paid by the Company, and the balance consideration
of $29 million is payable by December 31, 2021.
Guarantees
and Indemnities
The
Company agreed with Baoding Huanrun Trading Co., a major supplier of raw materials, to guarantee certain obligations of this third
party, and as of December 31, 2020, and 2019, the Company guaranteed its long-term loan from financial institutions amounting
to $4,751,031 (RMB31,000,000) and $4,443,680 (RMB31,000,000), respectively, that matured at various times in 2018-2023. If Huanrun
Trading Co., were to become insolvent, the Company could be materially adversely affected.
(18)
Segment Reporting
Since
March 10, 2010, Baoding Shengde started its operations and thereafter the Company manages its operations through two business
operating segments: Dongfang Paper, which produces offset printing paper and corrugating medium paper, and Baoding Shengde, which
produces digital photo paper. They are managed separately because each business requires different technology and marketing strategies.
The
Company evaluates performance of its operating segments based on net income. Administrative functions such as finance, treasury,
and information systems are centralized. However, where applicable, portions of the administrative function expenses are allocated
between the operating segments based on gross revenue generated. The operating segments do share facilities in Xushui County,
Baoding City, Hebei Province, China. All sales were sold to customers located in the PRC.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized
financial information for the two reportable segments is as follows:
|
|
Year Ended
|
|
|
|
December 31, 2020
|
|
|
|
Dongfang
|
|
|
Hebei
|
|
|
Baoding
|
|
|
Not Attributable
|
|
|
Elimination of
|
|
|
Enterprise-wide,
|
|
|
|
Paper
|
|
|
Tengsheng
|
|
|
Shengde
|
|
|
to Segments
|
|
|
Inter-segment
|
|
|
consolidated
|
|
Revenues
|
|
$
|
91,426,671
|
|
|
|
8,414,654
|
|
|
|
1,101,944
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,943,269
|
|
Gross profit
|
|
|
7,000,150
|
|
|
|
(1,828,214
|
)
|
|
|
530,049
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,701,985
|
|
Depreciation and amortization
|
|
|
7,039,687
|
|
|
|
8,613,750
|
|
|
|
140,417
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,793,854
|
|
Interest income
|
|
|
27,046
|
|
|
|
1,770
|
|
|
|
3,217
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,033
|
|
Interest expense
|
|
|
683,605
|
|
|
|
28,083
|
|
|
|
314,824
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,026,512
|
|
Income tax expense(benefit)
|
|
|
967,408
|
|
|
|
(2,140,532
|
)
|
|
|
56,550
|
|
|
|
14,717
|
|
|
|
-
|
|
|
|
(1,101,857
|
)
|
Net income (loss)
|
|
|
2,849,742
|
|
|
|
(5,837,914
|
)
|
|
|
(42,250
|
)
|
|
|
(2,523,580
|
)
|
|
|
-
|
|
|
|
(5,554,002
|
)
|
Total Assets
|
|
|
79,206,447
|
|
|
|
102,056,291
|
|
|
|
18,589,570
|
|
|
|
22,166
|
|
|
|
-
|
|
|
|
199,874,474
|
|
|
|
Year Ended
|
|
|
|
December 31, 2019
|
|
|
|
Dongfang
|
|
|
Hebei
|
|
|
Baoding
|
|
|
Not Attributable
|
|
|
Elimination of
|
|
|
Enterprise-wide,
|
|
|
|
Paper
|
|
|
Tengsheng
|
|
|
Shengde
|
|
|
to Segments
|
|
|
Inter-segment
|
|
|
consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
113,072,638
|
|
|
$
|
4,541,099
|
|
|
$
|
1,149
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
117,614,886
|
|
Gross profit
|
|
|
15,722,266
|
|
|
|
(2,030,942
|
)
|
|
|
(11,806
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,679,518
|
|
Depreciation and amortization
|
|
|
8,812,363
|
|
|
|
6,491,653
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,304,039
|
|
Loss from impairment and disposal of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest income
|
|
|
64,313
|
|
|
|
108
|
|
|
|
296
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,717
|
|
Interest expense
|
|
|
758,177
|
|
|
|
-
|
|
|
|
168,191
|
|
|
|
-
|
|
|
|
-
|
|
|
|
926,368
|
|
Income tax expense(benefit)
|
|
|
2,769,607
|
|
|
|
(1,632,012
|
)
|
|
|
(76,239
|
)
|
|
|
14,747
|
|
|
|
-
|
|
|
|
1,076,103
|
|
Net income (loss)
|
|
|
8,302,244
|
|
|
|
(5,444,598
|
)
|
|
|
(157,607
|
)
|
|
|
(478,857
|
)
|
|
|
|
|
|
|
2,221,182
|
|
Total Assets
|
|
|
73,347,811
|
|
|
|
99,747,236
|
|
|
|
17,031,392
|
|
|
|
71,991
|
|
|
|
-
|
|
|
|
190,198,430
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(19)
Concentration and Major Customers and Suppliers
For
the years ended December 31, 2020, and 2019, the Company had no single customer contributed over 10% of total sales.
For
the year ended December 31, 2020, the Company had two major suppliers that accounted for 72% and 12% of total purchases by the
Company.
For
the year ended December 31, 2019, the Company had two major suppliers that accounted for 74% and 12% of total purchases by the
Company.
(20)
Concentration of Credit Risk
Financial
instruments for which the Company is potentially subject to concentration of credit risk consist principally of cash. The Company
places its cash in reputable financial institutions in the PRC and the United States. Although it is generally understood that
the PRC central government stands behind all of the banks in China in the event of bank failure, there is no deposit insurance
system in China that is similar to the protection provided by the Federal Deposit Insurance Corporation (“FDIC”) of
the United States as of December 31, 2018 and December 31, 2017. On May 1, 2015, the new “Deposit Insurance Regulations”
was effective in the PRC that the maximum protection would be up to RMB500,000 (US$76,630) per depositor per insured financial
intuition, including both principal and interest. For the cash placed in financial institutions in the United States, the Company’s
U.S. bank accounts are all fully covered by the FDIC insurance as of December 31, 2020, and 2019, while for the cash placed in
financial institutions in the PRC, the balances exceeding the maximum coverage of RMB500,000 amounted to RMB25,322,558 (US$3,880,911)
as of December 31, 2020.
(21)
Risks and Uncertainties
IT
Tech Packaging is subject to substantial risks from, among other things, intense competition associated with the industry in general,
other risks associated with financing, liquidity requirements, rapidly changing customer requirements, foreign currency exchange
rates, and operating in the PRC under its various laws and restrictions.
(22)
Recent Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit
loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and
other financial instruments. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, with early adoption
permitted. In October 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective
Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying
the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those
fiscal years. Early adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2016-13 on our condensed
consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12
will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2020. All other amendments should be applied on a prospective basis. We do not expect the
adoption of ASU 2019-12 to have a material impact on our condensed consolidated financial statements.
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(23)
Subsequent Event
The Company adopts ASC Topic 855 “Subsequent
Events”. The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial
statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with
respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing
financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the
date of the balance sheet but arose subsequent to that date. The Company performed its evaluation of subsequent events through
March 23, 2021.
March 2021 Public Offering
On March 1, 2021, the Company offered and
sold to the public investors an aggregate of 29,277,866 shares of common stock and 14,638,933 warrants to purchase up to 14,638,933
shares of common stock in a firm commitment underwritten public offering for gross proceeds of approximately $21.9 million. The
purchase price for each share of common stock and accompanying warrant sold in the offering was $0.75. The warrants are exercisable
commencing on March 1, 2021 at an exercise price of $0.75 and will expire on March 1, 2026. In the event of a stock split, stock
dividend, combination, subsequent right offering or reclassification of the outstanding shares of Common Stock, the exercise price
and the number of shares issuable upon exercise of the warrants shall be proportionately adjusted. The Company intends to use the
net proceeds from the offering for general corporate and working capital purposes.
January 2021 Public Offering
On January 20, 2021, the Company offered
and sold to certain institutional investors an aggregate of 26,181,818 shares of common stock and 26,181,818 warrants to purchase
up to 26,181,818 shares of common stock in a best-efforts public offering for gross proceeds of approximately $14.4 million. The
purchase price for each share of common stock and the corresponding warrant sold in the offering was $0.55. The warrants are exercisable
commencing on January 20, 2021 at an exercise price of $0.55 and will expire on January 20, 2026. In the event of a stock split,
stock dividend, combination, subsequent right offering or reclassification of the outstanding shares of Common Stock, the exercise
price and the number of shares issuable upon exercise of the warrants shall be proportionately adjusted. The Company intends to
use the net proceeds from the offering for general corporate and working capital purposes.
(24)
Summarized Quarterly Financial Data (Unaudited)
Quarterly
financial information for 2020 and 2019 is as follows:
|
|
Quarter
|
|
2020
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Revenues
|
|
$
|
8,743,851
|
|
|
$
|
26,362,273
|
|
|
$
|
33,357,451
|
|
|
$
|
32,479,694
|
|
Gross (loss) profit
|
|
|
(169,719
|
)
|
|
|
2,558,829
|
|
|
|
2,567,551
|
|
|
|
745,323
|
|
(Loss) income from operations
|
|
|
(2,866,682
|
)
|
|
|
(798,643
|
)
|
|
|
176,631
|
|
|
|
(1,967,110
|
)
|
Net loss
|
|
|
(2,436,287
|
)
|
|
|
(980,031
|
)
|
|
|
(520,974
|
)
|
|
|
(1,616,710
|
)
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-0.11
|
|
|
$
|
-0.04
|
|
|
$
|
-0.02
|
|
|
$
|
-0.06
|
|
Diluted
|
|
$
|
-0.11
|
|
|
$
|
-0.04
|
|
|
$
|
-0.02
|
|
|
$
|
-0.06
|
|
|
|
Quarter
|
|
2019
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Revenues
|
|
$
|
17,450,292
|
|
|
$
|
33,619,948
|
|
|
$
|
32,937,917
|
|
|
$
|
33,606,729
|
|
Gross (loss) profit
|
|
|
(192,466
|
)
|
|
|
2,908,129
|
|
|
|
5,374,732
|
|
|
|
5,589,123
|
|
(Loss) income from operations
|
|
|
(3,173,939
|
)
|
|
|
531,667
|
|
|
|
3,349,306
|
|
|
|
3,190,765
|
|
Net (loss) income
|
|
|
(2,722,595
|
)
|
|
|
450,070
|
|
|
|
2,338,027
|
|
|
|
2,155,680
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-0.13
|
|
|
$
|
0.02
|
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
Diluted
|
|
$
|
-0.13
|
|
|
$
|
0.02
|
|
|
$
|
0.11
|
|
|
$
|
0.10
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(25)
Condensed Financial Information of the Parent Company
The
condensed financial statements of IT Tech Packaging Inc. (“ITP”, the “parent company”) have been prepared
in accordance with accounting principles generally accepted in the United States of America. Under the PRC laws and regulations,
the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the parent company
in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital, capital surplus and statutory
reserves, as determined pursuant to PRC generally accepted accounting principles, totaling $45,589,643 as of December 31, 2020,
and 2019.
The
following represents condensed unconsolidated financial information of the parent company only:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,172
|
|
|
$
|
71,991
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
16,172
|
|
|
|
71,991
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
181,194,669
|
|
|
|
170,426,900
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
181,210,840
|
|
|
$
|
170,498,891
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Inter-company payable
|
|
$
|
4,287,974
|
|
|
$
|
4,020,394
|
|
Due to related parties
|
|
|
727,433
|
|
|
|
483,433
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,015,407
|
|
|
|
4,503,827
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
|
1,115,260
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
6,130,667
|
|
|
$
|
4,503,827
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
175,080,173
|
|
|
|
165,995,064
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
181,210,840
|
|
|
$
|
170,498,891
|
|
IT
TECH PACKAGING, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
-
|
|
|
|
-
|
|
Selling, general and administrative expenses
|
|
$
|
2,082,743
|
|
|
$
|
464,108
|
|
Loss from Operations
|
|
|
(2,082,743
|
)
|
|
|
(464,108
|
)
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
(3,030,487
|
)
|
|
|
2,700,039
|
|
Loss on derivative liability
|
|
|
(426,055
|
)
|
|
|
-
|
|
Income before Income Taxes
|
|
|
(5,539,285
|
)
|
|
|
2,235,931
|
|
Provision for Income Taxes
|
|
|
(14,717
|
)
|
|
|
(14,747
|
)
|
Net Income
|
|
$
|
(5,554,002
|
)
|
|
$
|
2,221,184
|
|
Other comprehensive income /(loss)
|
|
|
11,798,259
|
|
|
|
(2,793,585
|
)
|
Total Comprehensive Income (loss)
|
|
$
|
6,244,257
|
|
|
$
|
(572,401
|
)
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net Cash (Used in) Provided by Operating Activities
|
|
$
|
(846,820
|
)
|
|
$
|
6,730
|
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
|
(2,000,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
|
2,791,000
|
|
|
|
513,173
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(55,820
|
)
|
|
|
69,268
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - Beginning of Year
|
|
|
71,991
|
|
|
|
2,723
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents - End of Year
|
|
$
|
16,172
|
|
|
$
|
71,991
|
|
The
condensed financial information has been prepared using the same accounting policies as set out in the Company’s consolidated
financial statements except that the parent company has used equity method to account for its investments in the subsidiaries.