IT Tech Packaging, Inc. Announces Second Quarter 2020 Financial Results

BAODING,China,August 12,2020 --IT Tech Packaging,Inc. (NYSE American: 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 second quarter ended June 30,2020.

Second Quarter 2020 Unaudited Financial Results

For the Three Months Ended June 30,

($ millions)

2020

2019

% Change

Revenues

26.36

33.62

-21.6%

Regular Corrugating Medium Paper ("CMP")*

17.37

20.88

-16.8%

Light-Weight CMP**

4.50

5.31

-15.2%

Offset Printing Paper

1.26

6.24

-79.8%

Tissue Paper Products

2.38

1.19

100.2%

Face Masks

0.85

NM

NM

Gross profit

2.56

2.91

-12.0%

Gross profit (loss) margin

9.7%

8.7%

1.1 pp****

Regular Corrugating Medium Paper ("CMP")*

9.0%

7.7%

1.3 pp****

Light-Weight CMP**

12.5%

6.7%

5.9 pp****

Offset Printing Paper

23.7%

26.0%

-2.3pp****

Tissue Paper Products***

-15.7%

-56.7%

41.0 pp****

Face Masks

59.5%

NM

NM

Operating income (loss)

-0.80

0.53

-250.2%

Net income

-0.98

0.45

-317.8%

EBITDA

2.90

4.63

-37.4%

Basic and Diluted earnings (loss) per share

-0.04

0.02

-282.3%

* Products from PM6

** Products from PM1

*** Products from PM8 and PM9

**** pp represents percentage points

Revenue decreased by 21.6% to $26.4 million,primarily attributable to a 13%-21% decrease in average selling prices (ASPs) for all paper products and substantial decrease in sales volume of offset printing paper,partially offset by the increases in sales volume of tissue paper products.

Gross profit decreased by 12.0% to $2.6 million. Total gross margin increased by 1.1 percentage point to 9.7%. Gross margins increased from a range of 1.3 to 41 percentage points over all paper products except for offset printing paper. Gross margin for face masks was 59.5%.

Loss from operations was $0.8 million,compared to income from operations of $0.5 for the same period of last year.

Net loss was $1.0 million,or loss of $0.04 per basic and diluted share,compared to net income of $0.5 million,or $0.02 per basic and diluted share,for the same period of last year.

Earnings before interest,taxes,depreciation and amortization ("EBITDA") decreased by 37.4% to $2.9 million.

Mr. Zhenyong Liu,Chairman and Chief Executive Officer of the Company,commented,"Despite our sales and operations were impacted by the COVID-19 pandemic during the first quarter,we made improvements in the second quarter as our paper products business recovered and new face mask business launched in April generated revenue of 0.9million with gross margin of 59.5%. Our tissue paper continued a 100% growth in revenue and hit a record high with sales volume of 2,884 tonnes. Due to the pandemic impact to downstream industry,we experienced a 13% to 21% decrease in ASPsover all paper products categories,however,except for offset printing paper,we did not see much sales volume fluctuation from our paper products during the second quarter,so we expect the ASPsfor all paper products will be stabilized as the ante-pandemic economy recovery continues through the whole industry chain. "

Revenue

For the second quarter of 2020,total revenue decreased by $7.3 million,or 21.6%,to $26.4 million from $33.6 million for the same period of last year. The decrease in total revenue was mainly due to flat sales volume from CMP products,decreases in ASPs for all paper products and a substantial decrease in sales volume of offset printing paper,partially offset by the increase in sales volume of tissue paper products.

The following table summarizes revenue,volume and ASP by product for the second quarter of 2020 and 2019,respectively:

For the Three Months Ended June 30,

2020

2019

Revenue ($'000)

Volume (tonne)

ASP ($/tonne)

Revenue ($'000)

Volume (tonne)

ASP ($/tonne)

Regular CMP

17,372

46,979

370

20,883

47,994

435

Light-Weight CMP

4,503

12,611

357

5,311

12,582

422

Offset Printing Paper

1,262

2,183

578

6,237

8,559

729

Tissue Paper Products

2,380

2,884

825

1,189

1,254

948

Total

26,362

64,657

408

33,620

70,389

478

Revenue ($'000)

Volume (thousand pieces)

ASP ($/thousand pieces)

Revenue ($'000)

Volume ($/thousand pieces)

ASP ($/thousand pieces)

Face Masks

846

6,280

135

NM

NM

NM

Revenue from CMP,including both regular CMP and light-Weight CMP,decreased by $4.3 million,or 16.5%,to $21.9 million and accounted for 83% of total revenue for the second quarter of 2020,compared to $26.2 million,or 77.9% of total revenue,for the same period of last year. The Company sold 59,590 tonnes of CMP at an ASP of $367/tonne in the second quarter of 2020,compared to 60,576 tonnes at an ASP of $432/tonne in the same period of last year.

Of the total CMP sales,revenue from regular CMP decreased by $3.5 million,or 16.8%,to $17.4 million,resulting from sales of 46,979 tonnes at an ASP of $370/tonne,during the second quarter of 2020,compared to revenue of $20.9 million,resulting from sales of 47,994 tonnes at an ASP of $435/tonne,for the same period of last year. Revenue from light-weight CMP decreased by $0.8 million,or 15.2%,to $4.5 million,resulting from sales of 12,611 tonnes at an ASP of $357/tonne for the second quarter of 2020,compared to revenue of $5.3 million,582 tonnes at an ASP of $422/tonne for the same period of last year.

Revenue from offset printing paper decreased by $5.0 million,or 79.8%,to $1.3 million for the second quarter of 2020,from $6.2 million for the same period of last year. The Company sold 2,183 tonnes of offset printing paper at an ASP of $578/tonne in the second quarter of 2020,compared to 8,559 tonnes at an ASP of $729/tonne in the same period of last year.

Revenue from tissue paper products increased by $1.2 million,or 100.2%,to $2.4 million,resulting from sales of 2,884 tonnes at an ASP of $825/tonne,for the second quarter of 2020,compared to revenue of $1.2 million,resulting from sales of 1,254 tonnes at an ASP of $948/tonne for the same period of last year.

Revenue generated from selling face masks were $0.8 million for the second quarter ended June 30,2020. The Company sold 6,280 thousand pieces of face masks in the second quarter of 2020.

Gross Profit and Gross Margin

Total cost of sales decreased by $6.9 million,or 22.5%,to $23.8 million for the second quarter of 2020 from $30.7 million for the same period of last year. For paper products,overall cost of sales per tonne was $368 for the second quarter of 2020,compared to $436 for the same period of last year. The decrease in overall cost of sales was mainly due to the decreased sales volume of offset printing paper,decreased manufacturing overhead costs and decreased material costs,specifically lower average unit purchase costs of recycled paper board in the second quarter of 2020. Average unit purchase costs of recycled paper board,major raw material used for our production,was approximately $195/tonne for the second quarter of 2020,compared to $230/tonne for the same period of last year. Costs of sales per tonne for regular CMP,light-weight CMP,offset printing paper,and tissue paper products were $336,$312,$441,and $955,respectively,compared to $402,$394,$539 and $1,486,for the same period of last year. Total gross profit was $2.6 million for the second quarter of 2020,compare to the gross profit of $2.9 million for the same period of last year as a result of factors described above. Overall gross loss margin was 9.7% for the second quarter of 2020,compared to 8.7% for the same period of last year. Gross profit (loss) margins for regular CMP,tissue paper products and face mask products were 9.0%,12.5%,23.7%,-15.7% and 59.5%,compared to 7.7%,6.7%,26.0%,-56.7% and nil,for the same period of last year.

Selling,General and Administrative Expenses

Selling,general and administrative expenses ("SG&A") increased by $1.0 million,or 39.4%,to $3.4 million for the second quarter of 2020 from $2.4 million for the same period of last year. The increase was mainly related to the issuance of shares of common stock to officers,directors and employees of the Company,as compensatory incentive,and the issuance of shares of common stock to a consultant as compensation of service.

Income (loss) from Operations

Loss from operations was $0.8 million for the second quarter of 2020,compared to income from operations of $0.5 million for the same period of last year. The loss from operations was primarily due to increased SG&A expenses and decreased gross profit this quarter as discussed above. Operating loss margin was 3.0% for the second quarter of 2020,compared to operating margin of 1.6% for the same period of last year.

Net Income (Loss)

Net loss was $1.0 million,or $0.04 loss per basic and diluted share,for the same period of last year.

EBITDA

EBITDA was $2.9 million for the second quarter of 2020,compared to $4.6 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 June 30,

($ millions)

2020

2019

Net income (loss)

-0.98

0.45

Add: Income tax

-0.08

0.08

Net interest expense

0.24

0.24

Depreciation and amortization

3.72

3.86

EBITDA

2.90

4.63

First Half of 2020 Financial Results

For the Six Months Ended June 30,

($ millions)

2020

2019

% Change

Revenues

35.11

51.07

-31.3%

Regular Corrugating Medium Paper ("CMP")*

23.09

33.11

-30.3%

Light-Weight CMP**

6.52

8.68

-24.9%

Offset Printing Paper

1.26

6.24

-79.8%

Tissue Paper Products

3.39

3.05

11.1%

Face Masks

0.85

NM

NM

Gross profit

2.39

2.72

-12.0%

Gross profit (loss) margin

6.8%

5.3%

1.5 pp****

Regular Corrugating Medium Paper ("CMP")*

8.0%

4.7%

3.3 pp****

Light-Weight CMP**

12.6%

2.0%

10.6 pp****

Offset Printing Paper

23.7%

26.0%

-2.3 pp****

Tissue Paper Products***

-32.1%

-21.0%

-11.1 pp****

Face Masks

59.5%

NM

NM

Operating income (loss)

-3.67

-2.64

-38.7%

Net income

-3.42

-2.27

-50.3%

EBITDA

3.96

5.44

-27.2%

Basic and Diluted earnings (loss) per share

-0.14

-0.10

-35.7%

* Products from PM6

** Products from PM1

*** Products from PM8 and PM9

**** pp represents percentage points

Revenue

For first half of 2020,total revenue decreased by $16.0 million,or 31.3%,to $35.1 million from $51.1 million for the same period of last year. The decrease in total revenue was mainly due to decrease in sales volume of CMP,offset printing paper and decrease in ASPs over all paper products categories. The following table summarizes revenue,volume and ASP by product for the first half of 2020 and 2019,respectively:

For the Six Months Ended June 30,

2020

2019

Revenue ($'000)

Volume (tonne)

ASP ($/tonne)

Revenue ($'000)

Volume (tonne)

ASP ($/tonne)

Regular CMP

23,094

60,767

380

33,108

74,286

446

Light-Weight CMP

6,518

17,500

372

8,676

20,006

434

Offset Printing Paper

1,560

729

Tissue Paper Products

3,386

4,069

832

3,049

2,857

1,067

Total

34,261

84,519

405

51,070

105,709

483

Revenue ($'000)

Volume (thousand pieces)

ASP ($/thousand pieces)

Revenue ($'000)

Volume ($/thousand pieces)

ASP ($/thousand pieces)

Face Masks

846

6,including both regular CMP and light-Weight CMP decreased by $12.2 million,or 29.1%,to $29.6 million,and accounted for 84.4% of total revenue for the first half of 2020,compared to $41.8 million,or 81.8% of total revenue for the same period of last year. The Company sold 78,267 tonnes of CMP at an ASP of $378/tonne in the first half of 2020,compared to 94,292 tonnes at an ASP of $443/tonne in the same period of last year.

Of the total CMP sales,revenue from regular CMP decreased by $10.0 million,or 30.3%,to $23.1 million,resulting from sales of 60,767 tonnes at an ASP of $380/tonne during the first half of 2020,compared to revenue of $33.1 million,resulting from sales of 74,286 tonnes at an ASP of $446/tonne for the same period of last year. Revenue from light-weight CMP decreased by $2.2 million,or 24.9%,to $6.5 million,resulting from sales of 17,500 tonnes at an ASP of $372/tonne for the first half of 2020,compared to revenue of $8.7 million,resulting from sales of 20,006 tonnes at an ASP of $434/tonne for the same period of last year.

Revenue from offset printing paper decreased by $5.0 million,to $1.3 million for the first half of 2020 from $6.2 million for the same period of last year. The Company sold 2,183 tonnes of offset printing paper at an ASP of $578/tonne in the first half of 2020,560 tonnes at an ASP of $729/tonne in the same period of last year.

Revenue from tissue paper products increased by $0.3 million,or 11.1%,to $3.4 million,resulting from sales of 4,069 tonnes at an ASP of $832/tonne,for the first half of 2020,compared to revenue of $3.0 million,857 tonnes at an ASP of $1,067/tonne for the same period of last year.

Gross Profit and Gross Margin

Total cost of sales decreased by $15.6 million,or 32.3%,to $32.7 million for the first half of 2020 from $48.4 million for the same period of last year. The decrease in overall cost of sales was mainly due to the decreased sales volume of offset printing paper,specifically lower average unit purchase costs of recycled paper board in the first half of 2020. Costs of sales per tonne for regular CMP,tissue paper products were,$350,$325,and $1,099,for the first half of 2020 compared to $425,$425,$539,291,for the same period of last year.

Total gross profit decreased by $0.3 million,or 12.0%,to $2.4 million for the first half of 2020 from $2.7 million for the same period of last year. Overall gross margin increased by 1.5 percentage points to 6.8% for the first half of 2020 from 5.3% for the same period of last year. Gross margins for regular CMP,tissue paper products and face mask products were 8.0%,12.6%,-32.1% and 59.5%,compared to 4.7%,2.0%,-21.0% and nil,General and Administrative Expenses

SG&A expenses increased by $0.7 million,or 11.6%,to $6.0 million for the first half of 2020 from $5.4 million for the same period of last year. As a percentage of total revenue,SG&A expenses was 17.1% for the first half of 2020,compared to 10.6% for the same period of last year.

Loss from Operations

Loss from operations increased by $1.0 million,or 38.7%,to $3.7 million for the first half of 2020 from loss from operations of $2.6 million for the same period of last year. Operating loss margin was 10.4% for the first half of 2020,compared to 5.2% for the same period of last year.

Net Loss

Net loss increased by $1.1 million,or 50.3%,or loss per basic and diluted share of $0.14,compared to net loss of $2.3 million,or loss per basic and diluted share of $0.10,for the same period of last year.

EBITDA

EBITDA decreased by $1.4 million,or 27.2%,to $4.0 million for the first half of 2020 from $5.4 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 Six Months Ended June 30,

($ millions)

2020

2019

Net income (loss)

-3.42

-2.27

Add: Income tax

-0.61

-0.57

Net interest expense

0.49

0.49

Depreciation and amortization

7.50

7.79

EBITDA

3.96

5.44

Cash,Liquidity and Financial Position

As of June 30,2020,the Company had cash and bank balances,short-term debt (including bank loans,current portion of long-term loans from credit union and related party loans),and long-term debt (including loan from credit union) of $12.83 million,$10.39 million and $5.18 million,compared to $5.84 million,$8.31 million and $7.37 million,at the end of 2019.

Net accounts receivable was $3.16 million as of June 30,compared to $3.12 million as of December 31,2019. Net inventory was $5.85 million as of June 30,compared to $1.61 million at the end of 2019. As of June 30,the Company had current assets of $27.80 million and current liabilities of $16.6 million,resulting in a working capital of $11.21 million. This was compared to current assets of $24.04 million and current liabilities of $16.84 million,resulting in a working capital of $7.21 million at the end of 2019.

Net cash provided by operating activities was $5.86 million for the first half of 2020,compared to net cash used in operating activities of $0.81 million for the same period of last year. Net cash used in investing activities was $0.98 million for the first half of 2020,compared to $5.02 million for the same period of last year. Net cash provided by financing activities was $2.27 million for the first half of 2020,compared to net cash used in financing activities of $5.29 million for the same period of last year.

Recent development

On April 29,the Company launched its production line of non-medical single-use face masks as planned,following the completion of raw materials preparation,trial run of the equipment and the sample products inspection.

On April 30,the Company entered into a securities purchase agreement with certain institutional investors to purchase approximately $2.6 millionworth of its common stock in a registered direct offering and warrants to purchase shares of common stock in a concurrent private placement. Under the terms of the securities purchase agreement,as amended,the Company has agreed to sell 4.4 million shares of the Company's common stock and issue warrants to purchase up to an additional 4.4 million shares of the Company's common stock in a concurrent private placement transaction.

On May 5,the Company announced it planned the commercial launch of a new tissue paper production line (the "PM10"). The Company has signed an agreement to purchase paper machine with paper machine supplier and expects to launch commercial production of the PM10 following the success of its trial run.

On June 24,the Company announced that Dongfang Paper expects to launch the construction of a combined heat and power generation project utilizing biomass technology with the total construction area of 80,373 square meters which is located in its Wei County production base.

Earnings Conference Call

The Company's management will host a conference call to discuss its second quarter 2020 financial results at8:00 am US Eastern Time onWednesday,2020. To attend the conference call,please use the information below.

Date/Time: 8:00 am US Eastern Time (5:00 am US Pacific Time/8:00 pm Beijing Time)onWednesday,2020

Conference Title: IT Tech Packaging,Inc. Second Quarter 2020 Earnings Conference Call

Conference ID: 5729875

To attend the conference call,please register in advance of the conference using the link: http://apac.directeventreg.com/registration/event/5729875 to complete the online registration at least 15 minutes prior to the start of the call. Upon registering,the conference access information including participant dial-in numbers,a Direct Event passcode and a registrant ID will be provided to you via an email.

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/fnexvsa9 . Please access the link at least 15 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 ET on August 12,2020 to 9:59 am ET on August 19,2020. To listen,please dial+1-855-452-5696 if calling from the United States,or +61-281-990-299 if calling internationally. Use the conference ID 5729875 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 and single-use face masks 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 Americansince December 2009. For more information,please visit: http://www.itpackaging.cn/ .

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 Company

Email: ir@itpackaging.cn

Tel: +86 0312 8698215Investor Relations:

EverGreen Consulting Inc.

Janice Wang

+86-13811768559

+1-908-510-2351

Email: ir@changqingconsulting.comIT TECH PACKAGING,INC.CONDENSED CONSOLIDATED BALANCE SHEETSAS OF JUNE 30,2020 AND DECEMBER 31,2019

(Unaudited)

June 30,

December 31,

2020

2019

ASSETS

Current Assets

Cash and bank balances

$12,828,030

$5,837,745

Restricted cash

-

-

Accounts receivable (net of allowance for doubtful accounts of $57,531 and $59,922 as of June 30,2020 and December 31,2019,respectively)

3,164,142

3,119,311

Inventories

5,852,472

1,607,463

Prepayments and other current assets

5,874,642

11,613,241

Due from related parties

85,526

1,863,479

Total current assets

27,804,812

24,041,239

Prepayment on property,plant and equipment

1,412,529

1,433,445

Property,plant,and equipment,net

142,422,375

151,616,852

Value-added tax recoverable

2,444,304

2,621,841

Deferred tax asset non-current

11,348,246

10,485,053

Total Assets

$185,432,266

$190,198,430

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Short-term bank loans

$6,073,875

$6,163,814

Current portion of long-term loans from credit union

3,658,450

1,605,459

Accounts payable

848,390

250,486

Advance from customers

184,132

98,311

Notes payable

-

-

Due to related parties

657,433

539,985

Accrued payroll and employee benefits

251,868

291,924

Other payables and accrued liabilities

4,518,691

6,503,010

Income taxes payable

399,051

1,382,471

Total current liabilities

16,591,890

16,835,460

Loans from credit union

5,183,982

7,367,908

Derivative liability

717,070

-

Total liabilities (including amounts of the consolidated VIE without recourse to the Company of $16,746,095 and $19,460,257 as of June 30,respectively)

22,492,942

24,203,368

Commitments and Contingencies

Stockholders' Equity

Common stock,500,000,000 shares authorized,$0.001 par value per share,28,514,816 and 22,054,816 shares issued

28,515

22,055

Additional paid-in capital

53,974,869

51,155,174

Statutory earnings reserve

6,080,574

6,574

Accumulated other comprehensive loss

(8,523,112)

(6,057,537)

Retained earnings

111,378,478

114,794,796

Total stockholders' equity

162,939,324

165,995,062

Total Liabilities and Stockholders' Equity

$185,430

IT TECH PACKAGING,INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMEFOR THE THREE AND SIX MONTHS ENDED JUNE 30,2020 AND 2019

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Revenues

$26,362,273

$33,619,948

$35,106,124

$51,070,240

Cost of sales

(23,803,444)

(30,711,819)

(32,717,014)

(48,354,577)

Gross Profit

2,558,829

2,908,129

2,389,110

2,715,663

Selling,general and administrative expenses

(3,357,472)

(2,407,859)

(6,435)

(5,332 )

Gain on acquisition of a subsidiary

-

31,397

-

31,397

(Loss) Income from Operations

(798,643)

531,667

(3,665,325)

(2,642,272)

Other Income (Expense):

Interest income

9,451

1,556

15,241

60,374

Subsidy income

(979)

236,288

142,019

236,288

Interest expense

(241,436)

(238,771)

(486,154)

(494,040)

Loss on derivative liability

(27,865)

-

(27,865)

-

(Loss) Income before Income Taxes

(1,059,472)

530,740

(4,022,084)

(2,839,650)

Provision for Income Taxes

79,441

(80,670)

605,766

567,125

Net (Loss) Income

(980,031)

450,070

(3,416,318)

(2,272,525)

Other Comprehensive Income (Loss)

Foreign currency translation adjustment

124,179

(3,548,683)

(2,465,575)

(255,003)

Total Comprehensive Loss

$(855,852)

$(3,098,613)

$(5,881,893)

$(2,527,528)

(Losses) Earnings Per Share:

Basic and Diluted (Losses) Earnings per Share

$(0.04)

$0.02

$(0.14)

$(0.10)

Outstanding – Basic and Diluted

24,761

22,316

24,316

IT TECH PACKAGING,INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30,2020 AND 2019

(Unaudited)

Six Months Ended

June 30,

2020

2019

Cash Flows from Operating Activities:

Net income

$(3,318)

$(2,525)

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

7,496,314

7,789,459

Loss on derivative liability

27,865

-

(Recovery from) Allowance for bad debts

(1,525)

6,224

Share-based compensation and expenses

1,242,000

-

Gain on acquisition of a subsidiary

-

(31,397)

Deferred tax

(1,021,699)

(1,259,134)

Changes in operating assets and liabilities:

Accounts receivable

(89,311)

(311,265)

Prepayments and other current assets

5,739,395

60,694

Inventories

(4,622)

(2,920,950)

Accounts payable

604,823

502,310

Advance from customers

87,729

102,170

Notes payable

-

(3,691,999)

Related parties

1,878,231

161,857

Accrued payroll and employee benefits

(35,990)

39,237

Other payables and accrued liabilities

(1,394,793)

558,026

Income taxes payable

(968,474)

454,984

Net Cash Provided by (Used in) Operating Activities

5,856,625

(812,309)

Cash Flows from Investing Activities:

Purchases of property,plant and equipment

(981,150)

(3,472,355)

Acquisition of a subsidiary

-

(1,549,384)

Net Cash Used in Investing Activities

(981,150)

(5,739)

Cash Flows from Financing Activities:

Proceeds from issuance of shares and warrants,net

2,273,360

-

Proceeds from short term bank loans

-

3,987,359

Proceeds from credit union loans

-

2,879

Repayment of bank loans

-

(11,637,180)

Net Cash Provided by (Used in) Financing Activities

2,360

(5,286,942)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

(158,550)

137,936

Net Increase (Decrease) in Cash and Cash Equivalents

6,990,285

(10,983,054)

Cash,Cash Equivalents and Restricted Cash - Beginning of Period

5,745

12,117,425

Cash,Cash Equivalents and Restricted Cash - End of Period

$12,030

$1,134,371

Supplemental Disclosure of Cash Flow Information:

Cash paid for interest,net of capitalized interest cost

$288,463

$445,860

Cash paid for income taxes

$1,369,690

$222,278

Cash and bank balances

12,030

1,371

Restricted cash

-

-

Total cash,cash equivalents and restricted cash shown in the statement of cash flows

12,371

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