IT Tech Packaging, Inc. Announces Third Quarter 2019 Financial Results

BAODING,China,Nov. 8,2019 --IT Tech Packaging,Inc. (NYSE MKT: ITP) ("IT Tech Packaging" or the "Company"),a leading manufacturer and distributor of diversified paper products in North China,today announcedits unaudited financial results for the third quarter ended September 30,2019.

Mr. Zhenyong Liu,Chairman and Chief Executive Officer of the Company,commented,"We are pleased to report solid financial results for the third quarter of 2019 with 53.2% increases in sales volume across all three product categories,which reached the highest level since the fourth quarter of 2016. With continued turnarounds and recovery of the operation,we grew our top line by23.3% and delivered 313.3% growth in operating income,in the third quarter of 2019,and tissue paper and offset printing paper products generated $1.6 million and $7.0 million revenues,respectively. With 326.8% and 266.4% growth in overall gross profit and net income,respectively,our margins and profitability improved significantly in the recorded quarter thanks to continuedincrease in sales volume for all products as well as decreases in cost of materials and operating expenses. Looking ahead,we expect that the stable order trend will continue to carry over into the rest of the year and 2020."

Third Quarter 2019 Unaudited Financial Results

For the Three Months Ended September 30,

($ millions)

2019

2018

% Change

Revenues

32.94

26.72

23.3%

Regular Corrugating Medium Paper ("CMP")*

19.33

19.22

0.6%

Light-Weight CMP**

5.02

6.85

-26.8%

Offset Printing Paper

7.04

0.66

973.5%

Tissue Paper Products

1.55

0.00

NM

Gross profit

5.37

1.26

326.8%

Gross profit (loss) margin

16.3%

4.7%

11.6 pp***

Regular Corrugating Medium Paper ("CMP")*

14.7%

4.9%

9.8 pp***

Light-Weight CMP**

15.9%

5.1%

10.8 pp***

Offset Printing Paper

33.3%

-3.3%

36.6 pp***

Tissue Paper Products

-38.9%

NM

NM

Operating income (loss)

3.35

-1.57

313.3%

Net income

2.34

-1.40

266.4%

EBITDA

7.11

1.89

276.2%

Basic and Diluted earnings (loss) per share

0.11

-0.07

257.1%

* Products from PM6

** Products from PM1

*** pp represents percentage points

Total sales volume of CMP,offset printing paper and tissue paper products increased by 53.2% to 72,246 tonnes,reaching record highs since the fourth quarter 2016

Revenue increased by 23.3% to $32.9 million,primarily attributable to increase in sales volume of corrugating medium paper ("CMP"),offset printing paper and tissue paper products,partially offset by the decreases in average selling prices (ASP) for both CMP and offset printing paper

Gross profit increased significantly by 326.8% to $5.4 million. Gross margin increased by 11.6 percentage point to 16.3%. The increase in gross profit were primarily due to the decrease in average cost of sales per tonne for CMP and offset printing paper,which was attributable to the lower average unit purchase costs of recycled paper board and recycled white scrap paper used as raw material for CMP products and offset printing paper products. Gross margins over regular CMP,Light-Weight CMP products and offset printing paper product increased to 14.7%,15.9% and 33.3%,respectively

Income from operations increased by 313.3% to $3.3 million,compared to loss from operations of $1.6 million for the same period of last year

Net income was $2.3 million,an increase of 3.7 million,or 266.4%,from net loss of $1.4 million for the same period of last year. Earnings per basic and diluted share was $0.11,compared to loss per basic and diluted share of $0.07,for the same period of last year

Earnings before interest,taxes,depreciation and amortization ("EBITDA") increased by 276.2% to $7.1 million

Revenue

For the third quarter of 2019,total revenue increased by $6.2 million,or 23.3%,to $32.9 million from $26.7 million for the same period of last year. The increase in total revenue was mainly due to increases in sales volume of CMP products,partially offset by the decreases in average selling prices (ASP) for both CMP products and offset printing paper. Total sales volume of CMP,offset printing paper and tissue paper products during the period increased by 53.2% to 72,compared to 47,149 tonnes sold during the same period of 2018.

The following table summarizes revenue,volume and ASP by product for the third quarter of 2019 and 2018,respectively:

2019

2018

Revenue

($'000)

Volume

(tonne)

ASP

($/tonne)

Revenue

($'000)

Volume

(tonne)

ASP

($/tonne)

Regular CMP

19,332

47,487

407

19,219

33,928

566

Light-Weight CMP

5,017

12,721

394

6,850

12,319

556

Offset Printing Paper

7,038

10,198

690

656

902

727

Tissue Paper Products

1,551

1,840

843

-

-

-

Total

32,938

72,246

456

26,724

47,149

567

Revenue from CMP,including both regular CMP and light-Weight CMP,decreased by $1.7 million,or 6.6%,to $24.3 million and accounted for 73.9% of total revenue for the third quarter of 2019,compared to $26.1 million,or 97.5% of total revenue,for the same period of last year. The Company sold 60,208 tonnes of CMP at an ASP of $404/tonne in the third quarter of 2019,compared to 46,247 tonnes at an ASP of $564/tonne in the same period of last year.

Of the total CMP sales,revenue from regular CMP slightly increased by $0.1 million,or 0.6%,to $19.3 million,resulting from sales of 47,487 tonnes at an ASP of $407/tonne,during the third quarter of 2019,compared to revenue of $19.2 million,resulting from sales of 33,928 tonnes at an ASP of $566/tonne,for the same period of last year. Revenue from light-weight CMP decreased by $1.8 million,or 26.8%,to $5.0 million,resulting from sales of 12,721 tonnes at an ASP of $394/tonne for the third quarter of 2019,compared to revenue of $6.8 million,319 tonnes at an ASP of $556/tonne for the same period of last year.

Revenue from offset printing paper increased by $6.4 million,or 973.5%,to $7.0 million for the third quarter of 2019,from $0.7 million for the same period of last year. The Company sold 10,198 tonnes of offset printing paper at an ASP of $690/tonne in the third quarter of 2019,compared to 902 tonnes at an ASP of $727/tonne in the same period of last year.

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 Dongfang Paper brand. 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 10,000 tonnes/year. With the launch of PM8 in December 2018,the production and sales of tissue paper products have increased steadily in 2019. Revenue from tissue paper products was $1.6 million,4.7% of the total revenues and resulting from sales of 1,840 tonnes at an ASP of $843/tonne,for the third quarter of 2019.

Gross Profit and Gross Margin

Total cost of sales increased by $2.1 million,or 8.2%,to $27.6 million for the third quarter of 2019 from $25.5 million for the same period of last year. Overall cost of sales per tonne was $382 for the third quarter of 2019,compared to $540 for the same period of last year. The decrease in overall cost of sales per tonne was mainly due to decreased material costs,especially lower average unit purchase costs of recycled paper board and recycled white scrap paper,which decreased by 44.4% and 44%,in the third quarter of 2019. Costs of sales per tonne for regular CMP,light-weight CMP,offset printing paper,and tissue paper products were $347,$332,$461,and $1,171,for the third quarter of 2019,compared to $539,$528,$751 and $nil,for the same period of last year.

Gross profit increased by $4.1 million,or 326.8%,to $5.4 million for the third quarter of 2019 from $1.3 million for the same period of last year. Overall gross margin was 16.3% for the third quarter of 2019,compared to 4.7% for the same period of last year. The increase in gross profit and gross margin were mainly related to the decrease in average cost of sales per tonne for CMP and offset printing paper,which was attributable to the lower average unit purchase costs of recycled paper board and recycled white scrap paper used as raw material for CMP products and offset printing paper products. Gross margins for regular CMP,and tissue paper products were 14.7%,15.9%,33.3%,and negative 38.9%,compared to 4.9%,5.1%,negative 3.3%,and nil,for the same period of last year.

Selling,General and Administrative Expenses

Selling,general and administrative expenses ("SG&A") decreased by $0.8 million,or 28.5%,to $2.0 million for the third quarter of 2019 from $2.8 million for the same period of last year. The decrease was mainly related to less repair and maintenance costs incurred for the third quarter of 2019 as all of our production resumed since the first quarter of 2019,compared to the same period in 2018 that production was suspended and additional repair and maintenance costs incurred. As a percentage of total revenue,SG&A was 6.1% for the third quarter of 2019,compared to 10.6% for the same period of last year.

Income (loss) from Operations

Income from operations was $3.3 million for the third quarter of 2019,compared to loss from operations of $1.6 million for the same period of last year. The increase in income from operations was primarily due to substantial increase in gross profit combined with decreased SG&A expenses this year as discussed above. Operating margin was 10.2% for the third quarter of 2019,compared to operating loss margin of 5.9% for the same period of last year.

Net Income

Net income was $2.3 million,or $0.11 per basic and diluted share,compared to net loss of $1.4 million,or $0.07 loss per basic and diluted share,for the same period of last year.

EBITDA

EBITDA was $7.1 million for the third quarter of 2019,compared to $1.9 million for the same period of last year.

Note 1: Non-GAAP Financial Measures

In addition to our U.S. GAAP results,this press release includes a discussion of EBITDA,a non-GAAP financial measure as defined by the Securities and Exchange Commission ("SEC"). The Company defines EBITDA as net income before interest,income taxes,depreciation and amortization. EBITDA is a key measure used by management to evaluate our results and make strategic decisions. Management believes this measure is useful to investors because it is an indicator of operational performance. Because not all companies use identical calculations,the Company's presentation of EBITDA may not be comparable to similarly titled measures of other companies,and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with the U.S. GAAP.

Reconciliation of Net Income to EBITDA

(Amounts expressed in US$)

For the Three Months Ended September 30,

($ millions)

2019

2018

Net income (loss)

2.34

-1.40

Add: Income tax

0.77

-0.54

Net interest expense

0.24

0.37

Depreciation and amortization

3.76

3.46

EBITDA

7.11

1.89

Nine Months Ended September 30,2019 Financial Results

For the Nine Months Ended September 30,

($ millions)

2019

2018

% Change

Revenues

84.01

61.76

36.0%

Regular Corrugating Medium Paper ("CMP")*

52.44

43.43

20.7%

Light-Weight CMP**

13.69

13.10

4.5%

Offset Printing Paper

13.27

5.21

154.7%

Tissue Paper Products

4.60

0.00

NM

Digital Photo Paper

0.00

0.01

NM

Gross profit

8.09

3.58

126.0%

Gross margin

9.6%

5.8%

-3.8 pp

Regular Corrugating Medium Paper ("CMP")*

8.4%

6.6%

-1.8 pp

Light-Weight CMP**

7.1%

5.1%

-2.0 pp

Offset Printing Paper

29.8%

0.8%

29.0 pp

Tissue Paper Products

-27.0%

N/A

NM

Operating income (loss)

0.71

-6.10

111.6%

Net income (loss)

0.07

-5.38

101.2%

EBITDA

12.55

5.05

148.5%

Basic and Diluted earnings per share

0.003

-0.25

101.2%

* Products from PM6

** Products from PM1

*** pp represents percentage points

Revenue

For the nine months ended September 30,2019,total revenue increased by $22.2 million,or 36%,to $84 million from $61.8 million for the same period of last year. The increase in total revenue was mainly due to increase in sales volume of CMP,which was partially offset by the decrease in ASP of CMP and offset printing paper. Total sales volume of CMP,offset printing paper and tissue paper products during the period increased by 72% to 177,956 tonnes,compared to 103,446 tonnes sold during the same period of 2018.

The following table summarizes revenue,volume and ASP by product for the nine months ended September 30,2019 and 2018,respectively:

For the Nine Months Ended September 30,

2019

2018

Revenue

($'000)

Volume

(tonne)

ASP

($/tonne)

Revenue

($'000)

Volume

(tonne)

ASP

($/tonne)

Regular CMP

52,440

121,774

431

43,434

74,141

586

Light-Weight CMP

13,693

32,728

418

13,101

23,114

567

Offset Printing

Paper

13,275

18,757

708

5,212

6,191

842

Tissue Paper

Products

4,600

4,697

979

-

-

NM

Total

84,008

177,956

472

61,761

103,446

597

Revenue from CMP,including both regular CMP and light-Weight CMP increased by $9.6 million,or 17%,to $66.1 million,and accounted for 78.7% of total revenue for the nine months ended September 30,compared to $56.5 million,or 91.6% of total revenue for the same period of last year. The Company sold 154,502 tonnes of CMP at an ASP of $428/tonne in the nine months ended September 30,compared to 97,255 tonnes at an ASP of $581/tonne in the same period of last year.

Of the total CMP sales,revenue from regular CMP increased by $9 million,or 20.7%,to $52.4 million,resulting from sales of 121,774 tonnes at an ASP of $431/tonne during the nine months ended September 30,compared to revenue of $43.4 million,resulting from sales of 74,141 tonnes at an ASP of $586/tonne for the same period of last year. Revenue from light-weight CMP increased by $0.6 million,or 4.5%,to $13.7 million,resulting from sales of 32,728 tonnes at an ASP of $418/tonne for the nine months ended September 30,compared to revenue of $13.1 million,resulting from sales of 23,114 tonnes at an ASP of $567/tonne for the same period of last year.

Revenue from offset printing paper increased by $8.1 million,or 154.7%,to $13.3 million for the nine months ended September 30,2019 from $5.2 million for the same period of last year. The Company sold 18,757 tonnes of offset printing paper at an ASP of $708/tonne in the nine months ended September 30,compared to 6,191 tonnes at an ASP of $842/tonne in the same period of last year.

Revenue from tissue paper products was $4.6 million for the nine months ended September 30,resulting from sales of 4,697 tonnes of tissue paper products at an ASP of $979/tonne in the nine months ended September 30,2019.

Gross Profit and Gross Margin

Total cost of sales increased by $17.8 million,or 30.5%,to $75.9 million for the nine months ended September 30,2019 from $58.2 million for the same period of last year. The increase in overall cost of sales was mainly a result of the increase in sales volume,partially offset by the decrease of cost of recycled paper board and recycled white scrap paper. Average cost of sales per tonne for regular CMP,light-weight CMP and offset printing paper decreased by 28%,27.7% and 40.5%,respectively. Costs of sales per tonne for regular CMP,tissue paper products were,$394,$389,$497,244,for the nine months ended September 30,compared to $547,$538,$835,and $nil,for the same period of last year.

Total gross profit increased by $4.5 million,or 126%,to $8.1 million for the nine months ended September 30,2019 from $3.6 million for the same period of last year. The increase was mainly due to (i) the increase in quantities sold of CMP,tissue paper and (ii) the decrease of material purchase price of CMP and offset printing paper,partially offset by the decrease of ASP of these products. Overall gross margin decreased by 3.8 percentage points to 9.6% for the nine months ended September 30,2019 from 5.8% for the same period of last year. Gross margins for regular CMP,offset printing paper and tissue paper products were 8.4%,7.1%,30.0% and negative 27.0%,compared to 6.6%,0.8%,General and Administrative Expenses

SG&A expenses decreased by $2.3 million,to $7.4 million for the nine months ended September 30,2019 from $9.7 million for the same period of last year. As a percentage of total revenue,SG&A expenses was 8.8% for the nine months ended September 30,compared to 15.7% for the same period of last year.

Incomefrom Operations

Income from operations was$0.7 million for the nine months ended September 30,compared to loss from operations of $6.1 million for the same period of last year. Operating margin was 0.8% for the nine months ended September 30,compared to operating loss margin of 9.9% for the same period of last year.

Net Income

Net Income increased by $5.4 million,or 101.2%,to $0.07 million,or earnings per basic and diluted share of $0.003,2019. This compared to net loss of $5.4 million,or loss per basic and diluted share of $0.25,for the same period of last year.

EBITDA

EBITDA increased by $7.5 million,or 148.5%,to $12.6 million for the nine months ended September 30,2019 from $5.1 million for the same period of last year.

Note 1: Non-GAAP Financial Measures

In addition to our U.S. GAAP results,and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with the U.S. GAAP.

Reconciliation of Net Income to EBITDA

(Amounts expressed in US$)

For the Nine Months Ended September 30,

($ millions)

2019

2018

Net income (loss)

0.07

-5.38

Add: Income tax

0.21

-1.63

Net interest expense

0.73

1.18

Depreciation and amortization

11.55

10.87

EBITDA

12.55

5.05

Cash,Liquidity and Financial Position

As of September 30,the Company had cash and bank balances,short-term debt (including short-term bank loans,current portion of long-term loans from credit union and related party loans) and long-term debt (including loans from credit union and related party loans) of $4.8 million,$7.4 million and $8.8 million,compared to $8.5 million,$14.3 million,and $6.9 million,at the end of 2018.

Net accounts receivable was $2.8 million as of September 30,compared to $2.9 million as of December 31,2018. Net inventory was $7.0 million as of September 30,compared to $2.9 million at the end of 2018. As of September 30,the Company had current assets of $20.6 million and current liabilities of $61.0 million,resulting in a working capital deficit of $40.4 million. This compared to current assets of $24.2 million,current liabilities of $29.6 million and working capital deficit of $5.5 million at the end of 2018.

Net cash provided by operating activities was $4.6 million for the nine months ended September 30,compared to net cash provided by operating activities of $1.8 million for the same period of last year. Net cash used in investing activities was $6.4 million for the nine months ended September 30,compared to $1.8 million for the same period of last year. Net cash used in financing activities was $5.2 million for the nine months ended September 30,compared to net cash provided by financing activities of $0.8 million for the same period of last year.

Recent development

On October 31,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.

Earnings Conference Call

To attend the conference call,please dial in using the information below. When prompted upon dialing-in,please provide the conference ID or ask for the "IT Tech Packaging Third Quarter 2019 Earnings Conference Call."

Date:

Friday,November 8,2019

Time:

8:00 am EST

International Toll Free:

United States: +1-866-519-4004

Mainland China: 400-620-8038

Hong Kong: 800-906-601

International: +65-6713-5090

Conference ID:

1585869

This conference call will be broadcast live on the Internet and can be accessed by all interested parties at: https://edge.media-server.com/mmc/p/2ssokezr .

Please access the link at least fifteen minutes prior to the start of the call to register,download,and install any necessary audio software.

A playback will be available through 11:00 am EST on November 8,2019 to 7:59 am EST on November 16,2019. To listen,please dial+1-855-452-5696 if calling from the United States,or +61-281-990-299 if calling internationally. Use the passcode 1585869 to access the replay.

About IT Tech Packaging,Inc.

Founded in 1996,IT Tech Packaging,Inc. is a leading manufacturer and distributor of diversified paper products in North China. Using recycled paper as its primary raw material (with the exception of its tissue paper products),ITP produces and distributes three categories of paper products: corrugating medium paper,offset printing paper and tissue paper products. With production based in Baoding and Xingtai in North China's Hebei Province,ITP is located strategically close to the Beijing and Tianjin region,home to a growing base of industrial and manufacturing activities and one of the largest markets for paper products consumption in the country. ITP has been listed on the NYSE MKT since December 2009.

Safe Harbor Statements

This press release may contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated,including risks outlined in the Company's public filings with the Securities and Exchange Commission,including the Company's latest annual report on Form 10-K. All information provided in this press release speaks as of the date hereof. Except as otherwise required by law,the Company undertakes no obligation to update or revise its forward-looking statements.

For more information,please contact:

At the CompanyEmail: ir@itpackaging.cn

Tel: +86 0312 8698215

Investor Relations:

Melody Shi,CPA

EverGreen Consulting Inc.

Email: ir@changqingconsulting.com

IT TECH PACKAGING,INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30,2019 AND DECEMBER 31,2018

(Unaudited)

September 30,

December 31,

2019

2018

ASSETS

Current Assets

Cash and bank balances

$

4,805,861

$

8,474,809

Restricted cash

-

3,642,616

Accounts receivable (net of allowance for doubtful

accounts of $56,638 and $58,707 as of September 30,

2019 and December 2018,respectively)

2,775,304

2,876,632

Inventories

7,010,419

2,923,516

Prepayments and other current assets

5,982,730

6,241,299

Total current assets

20,574,314

24,158,872

Property,plant,and equipment,net

153,108,508

167,829,716

Value-added tax recoverable

2,620,515

2,810,331

Deferred tax asset non-current

9,827,679

8,277,091

Other non-current assets

45,273,629

-

Total Assets

$

231,404,645

$

203,076,010

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Short-term bank loans

$

6,362,312

$

11,802,075

Current portion of long-term loans from credit union

311,046

2,491,549

Accounts payable

857,218

629,054

Advance from customers

83,315

-

Notes payable

-

3,616

Due to related parties

766,544

413,336

Accrued payroll and employee benefits

239,501

213,536

Other payables and accrued liabilities

51,062,036

10,222,796

Income taxes payable

1,332,680

219,305

Total current liabilities

61,014,652

29,634,267

Loans from credit union

6,701,636

4,706,259

Loans from a related party

2,120,771

2,185,569

Total liabilities (including amounts of the

consolidated VIE without recourse to the Company of

$67,168,878 and $34,008,908 as of September 30,

2019 and December 31,2018,respectively)

69,837,059

36,526,095

Commitments and Contingencies

Stockholders' Equity

Common stock,500,000 shares authorized,

$0.001 par value per share,22,054,816 shares issued

22,684

22,360

Additional paid-in capital

51,154,544

51,137,319

Statutory earnings reserve

6,080,574

6,574

Accumulated other comprehensive loss

(8,329,334)

(3,263,952)

Retained earnings

112,639,118

112,573,614

Total stockholders' equity

161,567,586

166,549,915

Total Liabilities and Stockholders' Equity

$

231,010

IT TECH PACKAGING,INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,2019 AND 2018

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2019

2018

2019

2018

Revenues

$

32,937,917

$

26,723,657

$

84,157

$

61,761,041

Cost of sales

(27,563,185)

(25,464,314)

(75,917,762)

(58,181,584)

Gross Profit

5,374,732

1,259,343

8,090,395

3,579,457

Selling,general and

administrative expenses

(2,024,547)

(2,933)

(7,413,879)

(9,670,992)

Gain (Loss) from disposal of

property,plant and equipment

-

237

-

(10,026)

Gain on acquisition of a

subsidiary

(879)

-

30,518

-

Income (Loss) from

Operations

3,349,306

(1,570,353)

707,034

(6,101,561)

Other Income (Expense):

Interest income

1,413

5,222

61,787

32,641

Subsidy income

(2,800)

(5,786)

233,488

244,723

Interest expense

(236,987)

(372,276)

(731,027)

(1,183,269)

Income (Loss) before

Income Taxes

3,110,932

(1,943,193)

271,282

(7,007,466)

Provision for Income Taxes

(772,905)

538,231

(205,780)

1,626,222

Net Income (Loss)

2,338,027

(1,962)

65,502

(5,381,244)

Other Comprehensive Loss

Foreign currency translation

adjustment

(4,379)

(6,994,097)

(5,065,382)

(9,113)

Total Comprehensive Loss

$

(2,472,352)

$

(8,399,059)

$

(4,999,880)

$

(14,603,357)

Earnings (Losses) Per

Share:

Basic and Diluted Earnings

(Losses) per Share

$

0.11

$

(0.07)

$

0.003

$

(0.25)

Outstanding – Basic and

Diluted

22,028,171

21,450,316

22,316

IT TECH PACKAGING,INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINEMONTHS ENDED SEPTEMBER 30,2019 AND 2018

(Unaudited)

Nine Months Ended

September 30,

2019

2018

Cash Flows from Operating Activities:

Net income

$

65,502

$

(5,244)

Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization

11,547,650

10,873,536

Loss from disposal and impairment of property,plant and equipment

-

10,026

Allowance for bad debts

(339)

(11,444)

Gain on acquisition of a subsidiary

(30,518)

-

Deferred tax

(1,853,728)

(1,629,706)

Changes in operating assets and liabilities:

Accounts receivable

16,894

572,184

Prepayments and other current assets

185,780

(3,528,818)

Inventories

(4,307,754)

3,562,834

Accounts payable

254,749

(354,689)

Advance from customers

85,993

-

Notes payable

(3,648,250)

(2,294,280)

Related parties

367,277

114,714

Accrued payroll and employee benefits

33,334

(35,419)

Other payables and accrued liabilities

726,564

437,532

Income taxes payable

1,155,880

(525,502)

Net Cash Provided by Operating Activities

4,599,034

1,809,724

Cash Flows from Investing Activities:

Purchases of property,plant and equipment

(4,650)

(1,812,280)

Acquisition of a subsidiary

(1,531,531)

-

Net Cash Used in Investing Activities

(6,449,181)

(1,280)

Cash Flows from Financing Activities:

Proceeds from related party loans

-

4,588,559

Repayments of related party loans

-

(9,177,118)

Proceeds from short term bank loans

3,940,110

9,635,974

Proceeds from credit union loans

2,334,880

Repayment of bank loans

(11,499,285)

(4,282,655)

Net Cash (Used in) Provided by Financing Activities

(5,224,295)

764,760

Effect of Exchange Rate Changes on Cash and Cash

Equivalents

(237,122)

(677,172)

Net (Decrease) Increase in Cash and Cash Equivalents

(7,311,564)

85,032

Cash,Cash Equivalents and Restricted Cash - Beginning of

Period

12,117,425

9,017,427

Cash,Cash Equivalents and Restricted Cash - End of

Period

$

4,861

$

9,102,459

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest,net of capitalized interest cost

$

659,613

$

1,409,695

Cash paid for income taxes

$

888,881

$

522,547

Cash and bank balances

4,861

5,468,315

Restricted cash

-

3,144

Total cash,cash equivalents and restricted cash shown in

the statement of cash flows

4,861

9,459

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