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, 2022 was $100,352,434, representing a
decrease of $60,529,286, or 37.62%, from $160,881,720 for the previous year.
This was mainly due to the decrease in sales volume of corrugating medium paper
("CMP") and offset printing paper and tissue paper products.

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, 2022 was $100,081,664, a decrease of $60,262,256, or
37.58%, from $160,343,920 for the year ended December 31, 2021. This was mainly
due to the decrease in sales volume of regular CMP, light-weight CMP, offset
printing paper and tissue paper products, and the decrease in ASPs of CMP
products.



Total quantities of offset printing paper, CMP and tissue paper products sold
during the year ended December 31, 2022 amounted to 219,604 tonnes, a decrease
of 72,855 tonnes, or 24.91%, compared to 292,459 tonnes sold during the year
ended December 31, 2021. Total quantities of CMP and offset printing paper sold
decreased by 65,873 tonnes in the year of 2022 as compared to 2021. We sold
1,273 tonnes of tissue paper products in the year of 2022 as opposed to 8,255
tonnes in 2021. Production of CMP was suspended during January and February 2022
and offset printing paper suspended during the year. Production was restricted
due to Winter Olympics held in Beijing 2022 and COVID-19 control measures during
the year as required by the government. The changes in revenue and quantity sold
for the year ended December 31, 2022 and 2021 are summarized as follows:



                               Year Ended                            Year Ended                                                               Percentage
                            December 31, 2022                    December 31, 2021                         Change in                            Change
                                                             Quantity
Sales Revenue      Quantity (Tonne)         Amount           (Tonne)           Amount         Quantity (Tonne)         Amount          Quantity         Amount
Regular CMP                  180,977     $  82,297,055          213,490     $ 111,079,432               (32,513 )   $ (28,782,377 )        -15.23 %        -25.91 %
Light-Weight CMP              37,354     $  16,428,354         46,201       $  23,432,323                (8,847 )   $  (7,003,969 )        -19.15 %        -29.89 %
Total CMP                    218,331     $  98,725,409          259,691     $ 134,511,755               (41,360 )   $ (35,786,346 )        -15.93 %        -26.60 %
Offset Printing
Paper                              -     $           -           24,513     $  17,062,564               (24,513 )   $ (17,062,564 )       -100.00 %       -100.00 %
Tissue
Paper Products                 1,273     $   1,356,255            8,255     $   8,769,601                (6,982 )   $  (7,413,346 )        -84.58 %        -84.53 %
Total CMP,
Offset Printing
Paper and Tissue
Paper Revenue                219,604     $ 100,081,664          292,459     $ 160,343,920               (72,855 )   $ (60,262,256 )        -24.91 %        -37.58 %


                                       45

Monthly revenue (excluding revenue of digital photo paper and tissue paper products) for the 24 months ended December 31, 2022, are summarized below:





                               [[Image Removed]]

The average selling price, or ASP, for our major products for the years ended December 31, 2022 and 2021 are summarized as follows:





                                              Offset
                                             Printing        Regular CMP      Light-Weight         Tissue Paper
                                             Paper ASP           ASP             CMP ASP           Products ASP

Year Ended December 31, 2021               $         696     $       520     $           507     $           1062
Year Ended December 31, 2022               $           -     $       455     $           440     $           1065
Increase (Decrease) from comparable
period in the previous year                $        -696     $       -65     $           -67     $              3
Increase (Decrease) by percentage                      - %        -12.50 % 

          -13.21 %               0.28 %




The following is a chart showing the month-by-month ASPs for the 24 month period
ended December 31, 2022:



                               [[Image Removed]]



                                       46





Corrugating Medium Paper



Revenue from CMP amounted to $98,725,409 (98.64% of the total offset printing
paper, CMP and tissue paper products revenues) for the year ended December 31,
2022, representing a decrease of $35,786,346, or 26.60%, from $134,511,755
during 2021.

We sold 218,331 tonnes of CMP in the year ended December 31, 2022 as compared to 259,691 tonnes in the year ended December 31, 2021, representing a 15.93% decrease in quantity sold.


ASP for regular CMP dropped from $520/tonne in 2021 to $455/tonne in 2022,
representing a 12.50% decrease. ASP in RMB for regular CMP in 2021 and 2022 was
RMB3,355 and RMB3,073, respectively, representing a 8.41% decrease. The quantity
of regular CMP sold decreased by 32,513 tonnes, from 213,490 tonnes in 2021

to
180,977 tonnes in 2022.



ASP for light-weight CMP dropped from $507/tonne in 2021 to $440/tonne in 2022,
representing a $13.21% decrease. ASP in RMB for light-weight CMP in 2021 and
2022 was RMB3,270 and RMB2,972, respectively, representing a 9.11% decrease. The
quantity of light-weight CMP sold decreased by 8,847 tonnes, from 46,201 tonnes
in 2021, to 37,354 tonnes in 2022.



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,
2022 and 2021 were 49.28% and 60.94%, respectively, representing a decrease

of
11.66%.

Quantities sold for regular CMP that was produced by the PM6 production line from January 2021 to December 2022 are as follows:





                               [[Image Removed]]



Offset Printing Paper




Revenue from offset printing paper was $nil for the year ended December 31, 2022
compared to the revenue of $17,062,564 for the year ended December 31, 2021. Due
to COVID-19, our paper production was restricted and production of offset
printing paper was suspended in 2022.



                                       47





Tissue Paper Products



Revenue from tissue paper products was $1,356,255 (1.36% of the total offset
printing paper, CMP and tissue paper products revenues) for the year ended
December 31, 2022, representing a decrease of $7,413,346, or 84.53%, from
$8,769,601 in 2021. We sold 1,273 tonnes of tissue paper products in the year
ended December 31, 2022, as compared to 8,255 tonnes in 2021, a decrease of
6,982 tonnes, or 84.58%.

ASP for tissue paper products was $1,062/tonne and $1,065/tonne in the year ended December 31, 2021 and 2022, respectively, representing a 0.28% increase. ASP in RMB for tissue paper products for the year ended 2021 and 2022 was RMB6,849 and RMB7,198, respectively, representing a 5.10% increase.





Revenue of Face Mask



Revenue generated from selling face masks were $257,820 and $537,800 for the
year ended December 31, 2022 and 2021. We sold 5,625 thousand pieces of face
masks in the fourth quarter of 2022, as compared to 12,664 thousand pieces in
the comparable period of 2021, a decrease of 7,039 thousand pieces, or 55.58%.



Cost of Sales



Total cost of sales for CMP, offset printing paper and tissue paper products in
the year ended December 31, 2022 was $95,384,334, a decrease of $54,045,377, or
36.17%, from $149,429,711 for the year ended December 31, 2021. This was mainly
a result of the decrease in sales volume of CMP and offset printing paper and
decrease of material costs of CMP.



Cost of sales for CMP was $91,093,891 for the year ended December 31, 2022, as
compared to $125,445,157 in 2021. The decrease in the cost of sales of
$34,351,266 for CMP was mainly due to the decrease in the quantities of regular
CMP sold and the decrease in average cost of sales in the year of 2022. Average
cost of sales per tonne for CMP decreased by 13.66%, from $483 for the year
ended December 31, 2021, to $417 in 2022.This is mainly attributable to the
lower average unit purchase costs (net of applicable value added tax) of
recycled paper board.

Cost of sales for offset printing paper was $nil for the year ended December 31, 2022, as compared to $13,963,983 in 2021.





Cost of sales for tissue paper products was $4,290,443 for the year ended
December 31, 2022, as compared to $10,020,571 in 2021. The decrease in the cost
of sales of $5,730,128 for tissue paper products was mainly due to the decrease
in sales volume of tissue paper products, partially offset by the increase in
average cost of sales. Average cost of sales per tonne of tissue paper products
increased by 177.59%, from $1,214 in 2021 to $ 3,370 in 2022. This was mainly
due to the increase in cost of tissue base paper and higher manufacturing
overhead costs absorbed in the unit cost of sales due to low production yield.

Changes in cost of sales and cost per tonne by product for the year ended December 31, 2022 and 2021 are summarized below:





                                    Year Ended                              Year Ended
                                December 31, 2022                        December 31, 2021                           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            $    76,213,404     $            421     $  104,057,538     $            487     $  (27,844,134 )   $            (66 )            -26.76 %            -13.55 %
Light-Weight CMP       $    14,880,487     $            398     $   21,387,619     $            463     $   (6,507,132 )   $            (65 )            -30.42 %            -14.04 %
Total CMP              $    91,093,891     $            417     $  125,445,157     $            483     $  (34,351,266 )   $            (66 )            -27.38 %            -13.66 %
Offset Printing
Paper                  $             -     $              -     $   13,963,983     $            570     $  (13,963,983 )   $           (570 )           -100.00 %           -100.00 %
Tissue Paper
Products               $     4,290,443     $          3,370     $   10,020,571     $          1,214     $   (5,730,128 )   $          2,156              -57.18 %            177.59 %
Total CMP, Offset
Printing Paper and
Tissue Paper Revenue   $    95,384,334     $            n/a     $  149,429,711     $            n/a     $  (54,045,377 )   $            n/a              -36.17 %               n/a %




Our average unit purchase costs (net of applicable value added tax) of recycled
paper board for the year ended December 31, 2022 were RMB 1,690/tonne
(approximately $250/tonne), as compared to RMB 1,997/tonne (approximately
$310/tonne) for the year ended December 31, 2021. These changes (in US dollars)
represent a year-over-year decrease of 19.35% for the unit purchase cost of
recycled paper board. We use domestic recycled paper (sourced mainly from the
Beijing-Tianjin metropolitan area) exclusively. Although we do not rely on
imported recycled paper, the pricing of which tends to be more volatile than
domestic recycled paper, our experience suggests that the pricing of domestic
recycled paper bears some correlation to the pricing of imported recycled paper.



                                       48

The pricing trends of our major raw materials for the 24-month period from January 2021 to December 2022 are shown below:





                               [[Image Removed]]



Electricity and gas are our two main energy sources. Electricity and gas
accounted for approximately 4% and 12.4% of total sales in 2022, respectively,
compared to 4% and 10.5% of total sales 2021. The monthly energy cost
(electricity and gas) as a percentage of total monthly sales of our main paper
products for the 24 months ended December 31, 2022 are summarized as follows:



                               [[Image Removed]]



Gross Profit



Gross profit for December 31, 2022 was $4,754,196 (4.74% of the total revenue),
representing a decrease of $6,263,363, or 56.85%, from the gross profit of
$11,017,559 (6.85% of the total revenue) for the year ended December 31, 2021.
The decrease was mainly due to (i) the decrease in quantities sold of CMP,
offset printing paper and tissue paper products, and (ii) the increase in
material costs of tissue paper products.



                                       49

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, 2022 was $4,697,330, a decrease of $6,216,879, or
56.96%, from the gross profit of $10,914,209 for the year ended December 31,
2021. 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 2.12 percentage points, from 6.81% for the year ended December 31, 2021, to 4.69% for the year ended December 31, 2022.





Gross profit margin for regular CMP for the year ended December 31, 2022 was
7.39%, or 1.07 percentage points higher, as compared to gross profit margin of
6.32% for the year ended December 31, 2021. Such increase was primarily due to
decrease in material costs, partially offset by the decrease in ASP of regular
CMP.



Gross profit margin for light-weight CMP for the year ended December 31, 2022
was 9.42%, or 0.69 percentage points higher, as compared to gross profit margin
of 8.73% for the year ended December 31, 2021. Such increase was primarily due
to the decrease in material costs, partially offset by the decrease in ASP

of
light-weight CMP.



Gross profit margin for tissue paper products was -216.34% for the year ended
December 31, 2022, a decrease of 202.08 percentage points, as compared to
-14.26% for the year ended December 31, 2021.The decrease was mainly due to the
increase 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, 2022 are as follows:





                               [[Image Removed]]



Face Masks



Gross profit for face mask for the year ended December 31, 2022 was $67,328,
representing a gross margin of 26.11% compared with a gross profit of $103,350,
representing a gross margin of 19.22%, for the year ended December 31, 2021.

Selling, General and Administrative Expenses





Selling, general and administrative expenses for the year ended December 31,
2022 were $10,058,723, an increase of $500,533, or 5.24% from $9,558,190 for the
year ended December 31, 2021. The increase was mainly due to 150,000 shares of
common stock granted under our compensatory incentive plan in August 2022, value
at $156,000 and additional bad debt provision.

Income (Loss) from Operations





Operating loss for the year ended December 31, 2022 was $5,304,527, a decrease
of $6,763,896, or 463.48%, from income from operations of $1,459,369 for the
year ended December 31, 2021. The decrease was primarily due to the decrease in
gross profit and increase in selling, general and administrative expenses.




                                       50





Other Income and Expenses




Interest expense for the year ended December 31, 2022 decreased by $96,751, from
$1,124,702 for the year ended December 31, 2021, to $1,027,951. The Company had
short-term and long-term interest-bearing loans and lease obligation that
aggregated $15,442,807 as of December 31, 2022, as compared to $16,139,485

as of
December 31, 2021.



Provision for Income Taxes



Full allowance for deferred tax asset loss was provided in the year of 2022.
Income tax for the year ended December 31, 2022 is $11,711,339 as compared to
the income tax $5,546,954 for the year ended December 31, 2021.



Net Income (Loss)



As a result of the above, net loss was $16,571,308 for the year ended December
31, 2022, representing a decrease of $17,476,843, or 1930.0%, from net income of
$905,535 for year ended December 31, 2021.



Accounts Receivable




Net accounts receivable decreased by $3,987,056, or 81.89%, to $881,878 as of
December 31, 2022, as compared with $4,868,934 as of December 31, 2021. We
usually collect accounts receivable within 30 days of delivery and completion of
sales.



Inventories




Inventories consist of raw materials (accounting for 51.22% of total value of
inventory as of December 31, 2022), semi-finished goods and finished goods. As
of December 31, 2022, the recorded value of inventory decreased by 50.85% to
$2,872,622 from $5,844,895 as of December 31, 2021. As of December 31, 2022, the
inventory of recycled paper board, which is the main raw material for the
production of CMP, was $1,258,161, approximately $838,901, or 40.00%, lower than
the balance as of December 31, 2021. As a result of better control over stock
turnover, recycled paper board and finished goods were reduced by 40% and 62.7%,
respectively, as at December 31, 2022 as compared to finished goods at the

end
of 2021.

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





                                            December 31,       December 31,
                                                2022               2021            $ Change        % Change
Raw Materials
Recycled paper board                       $    1,258,161     $    2,097,062         -838,901         -40.00 %
Recycled white scrap paper                         10,809             11,808             -999          -8.46 %
Tissue base paper                                  60,660             38,745           21,915          56.56 %
Gas                                                42,237             32,753            9,484          28.96 %
Mask fabric and other raw materials                99,569            167,786          -68,217         -40.66 %
Total Raw Materials                             1,471,436          2,348,154         -876,718         -37.34 %

Semi-finished Goods                               132,810             96,087           36,723          38.22 %
Finished Goods                                  1,268,376          3,400,654       -2,132,278         -62.70 %
Total inventory, gross                          2,872,622          5,844,895       -2,972,273         -50.85 %
Inventory reserve                                       -                  -                -
Total inventory, net                       $    2,872,622     $    5,844,895       (2,972,273 )       -50.85 %




                                       51





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 $147,988 (RMB1,000,000). The lease agreement was
renewed in August 2022 with a term of six years with the same rental payments as
provided for in the original lease agreement.

Capital Expenditure Commitment as of December 31, 2022


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, 2022, we had approximately $4.3 million in capital
expenditure commitments that were mainly related to the purchase of paper
machine of PM10. The infrastructure work of PM10 has been completed and the
associated ancillary facilities are working in progress. These commitments are
expected to be financed by bank loans and cash flows generated from our business
operations.



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, Tengsheng Paper sold the Leased
Equipment to TLCL for 16 million (approximately US$2.5 million). Concurrent with
the sale of equipment, Tengsheng Paper leases back the equipment sold to TLCL
for a lease term of three years. At the end of the lease term, Tengsheng Paper
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.




Tengsheng Paper made payments due according to the schedule. As of December 31,
2022 and 2021, the balance of Leased Equipment net of amortization was
$1,939,970 and $2,286,459, respectively. The lease liability were $131,772 and
$362,394, and its current portion in the amount of $131,772 and $210,161 as of
December 31, 2022 and 2021, respectively.



Amortization of the Leased Equipment was $157,854 and $165,441 for the year
ended December 31, 2022 and 2021, respectively. Total interest expenses for the
sale lease back arrangement was $38,954 and $71,798 for the year ended December
31, 2022 and 2021, respectively.

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.





                                       52

Cash, Cash Equivalents and restricted cash


Our cash, cash equivalents and restricted cash as of December 31, 2022 was
$9,524,868, a decrease of $1,676,744, from $11,201,612 as of December 31, 2021.
The decrease of cash and cash equivalents for the year ended December 31, 2022
was attributable to a number of factors including:

i. Net cash provided by operating activities





Net cash provided by operating activities was $10,719,388 for the year ended
December 31, 2022. The balance represented a decrease of cash of $13,155,459, or
540.03%, from $2,436,071 used in operating activities for the year ended
December 31, 2021. Net loss for the year ended December 31, 2022 was $
$16,571,308, representing a decrease of $17,476,843, or 1930.0%, from a net
income of $905,535 for the year ended December 31, 2021. Changes in various
asset and liability account balances throughout the year ended December 31, 2022
also contributed to the net change in cash from operating activities in year
ended December 31, 2022. Chief among such changes is the decrease of accounts
receivable in the amount of $3,750,196 (an increase to net cash) during the year
of 2022. There was also a decrease of $2,554,072 in the ending inventory balance
as of December 31, 2022 (an increase to net cash for the year ended December 31,
2022 cash flow purposes). In addition, the Company had non-cash expenses
relating to depreciation and amortization in the amount of $14,788,036, net
deferred tax allowance of $10,261,104 and allowance for bad debts of $843,779.
The Company also had a net increase of $3,976,010 in prepayment and other
current assets (a decrease to net cash) and a net increase of $1,018,448 in
other payables and accrued liabilities and related parties (a decrease to net
cash), as well as a decrease in income tax payable of $614,738 (a decrease to
net cash) during the year ended December 31, 2022.

ii. Net cash used in investing activities





We incurred $10,898,531 in net cash expenditures for investing activities during
the year ended December 31, 2022, as compared to $25,071,372 for the year ended
December 31, 2021. Payments in 2022 were mainly for the last installments for
the Tengsheng land acquisition.

iii. Net cash provided by financing activities





Net cash used in financing activities was $879,596 for the year ended December
31, 2022, as compared to net cash provided by financing activities in the amount
of $34,193,824 for the year ended December 31, 2021.



                                                                December 31,       December 31,
                                                                    2022               2021

Industrial and Commercial Bank of China ("ICBC") Loan 1        $           

-     $    5,958,561
ICBC Loan 2                                                         5,023,978
ICBC Loan 3                                                           287,167                  -
ICBC Loan 4                                                           143,583                  -
China Construction Bank Loan                                          143,583                  -

Total short-term bank loans                                    $    5,598,311     $    5,958,561




On November 25, 2021, the Company entered into a working capital loan agreement
with the ICBC, with a balance of $5,958,561 as of December 31, 2021. The working
capital loan was secured by the land use right of Dongfang Paper as collateral
for the benefit of the bank and guaranteed by Mr. Liu. The loan bears a fixed
interest rate of 4.785% per annum. The loan was fully repaid in November 2022.



On November 10, 2022, the Company entered into a working capital loan agreement
with the ICBC, with a balance of $5,023,978 as of December 31, 2022. The working
capital loan was secured by the land use right of Dongfang Paper as collateral
for the benefit of the bank and guaranteed by Mr. Liu. The loan bears a fixed
interest rate of 4.785% per annum. The loan will be due by November 13, 2023.



On November 30, 2022, the Company entered into a working capital loan agreement
with the ICBC, with a balance of $287,167 as of December 31, 2022. The loan
bears a fixed interest rate of 4.3% per annum. The loan will be due by May

29,
2023.



On November 30, 2022, the Company entered into a working capital loan agreement
with the ICBC, with a balance of $143,583 as of December 31, 2022. The loan
bears a fixed interest rate of 4.3% per annum. The loan will be due by May

29,
2023.




On July 29, 2022, the Company entered into a working capital loan agreement with
the China Construction Bank, with a balance of $143,583 as of December 31, 2022.
The loan bears a fixed interest rate of 3.95% per annum. The loan will be due by
July 29, 2023.

As of December 31, 2021, there were guaranteed short-term borrowings of $5,958,561 and unsecured bank loans of $nil. As of December 31, 2022, there were guaranteed short-term borrowings of $5,023,978 and unsecured bank loans of $574,333.

The average short-term borrowing rates for the years ended December 31, 2022, and 2021 were approximately 4.72% and 4.73%, respectively.





                                       53





Long-term loans

As of December 31, 2022, and 2021, long-term loans balance is $9,040,002 and $9,818,530, 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
bore a rate of 7.68% per annum. With effective from November 15, 2022, the
interest rate is reduced to 7% per annum. 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,
2022, and 2021, total outstanding loan balance was $1,234,816 and $1,348,871,
respectively, Out of the total outstanding loan balance, current portion
amounted were $1,234,816 and $329,376 as of December 31, 2022, and 2021,
respectively, which are presented as current liabilities in the consolidated
balance sheet and the remaining balance of $nil and $1,019,495 are presented as
non-current liabilities in the consolidated balance sheet as of December 31,
2022, and 2021, 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 $280,466 and $1,130,333 as of December 31, 2022, and 2021,
respectively. Interest payment is due quarterly and bore a rate of 7.68% per
annum. With effective from November 15, 2022, the interest rate is reduced to 7%
per annum. As of December 31, 2022, and 2021, the total outstanding loan balance
was $3,589,582 and $3,921,139, respectively. Out of the total outstanding loan
balance, current portion amounted were $3,589,582 and $1,960,569 as of December
31, 2022, and 2021 respectively, which are presented as current liabilities in
the consolidated balance sheet and the remaining balance of $nil and $1,960,570
are presented as non-current liabilities in the consolidated balance sheet as of
December 31, 2022, and 2021, respectively.



On April 17, 2019, the Company entered into a loan agreement with the Rural
Credit Union of Xushui District for a term of 2 years, which was due and payable
in various installments from August 21, 2019 to April 16, 2021. The loan was
renewed on March 22, 2021 and December 24, 2021 and extended for additional 3
years in total, which will be due on April 16, 2024 according to the new
schedule. The loan is secured by Tengsheng Paper with its land use right as
collateral for the benefit of the credit union. Interest payment is due
quarterly and bore a rate of 7.68% per annum. With effective from November 15,
2022, the interest rate is reduced to 7% per annum. As of December 31, 2022, and
2021, the total outstanding loan balance was $2,297,332 and $2,509,528,
respectively. Out of the total outstanding loan balance, current portion
amounted were $nil and $2,509,528 as of December 31, 2022 and 2021 respectively,
which are presented as current liabilities in the consolidated balance sheet and
the remaining balance of $2,297,332 and $nil are presented as non-current
liabilities in the consolidated balance sheet as of December, 2022 and 2021,
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 was
renewed on March 22, 2021 and December 24, 2021 and extended for additional 3
years in total, which will be due on December 11, 2024 according to the new
schedule. The loan is secured by Tengsheng Paper with its land use right as
collateral for the benefit of the credit union. Interest payment is due monthly
and bore a rate of 7.68% per annum. With effective from November 15, 2022, the
interest rate is reduced to 7% per annum. As of December 31, 2022, and 2021, the
total outstanding loan balance was $1,866,582 and $2,038,992, respectively. Out
of the total outstanding loan balance, current portion amounted were $nil and
$2,038,992 as of December 31, 2022, and 2021 respectively, which are presented
as current liabilities in the consolidated balance sheet and the remaining
balance of $1,866,582 and $nil are presented as non-current liabilities in the
consolidated balance sheet as of December 31, 2022, and 2021, respectively.



On July 1, 2022, the Company entered into a loan agreement with Jiangna Yu, a
customer of the Company, pursuant to which the Company borrowed RMB400,000 from
Jiangna Yu for a term of five years. The loan is payable in monthly installment
of RMB10,667 from July 2022 to July 2027. As of December 31, 2022, the total
outstanding loan balance was $51,690. Out of the total outstanding loan balance,
the current portion amounted $11,486, which is presented as current liabilities
and the remaining balance of $40,204 is presented as non-current liabilities in
the consolidated balance sheet as of December 31, 2022.

Total interest expenses for the short-term bank loans and long-term loans for the years ended December 31, 2022, and 2021 were $988,997 and $1,052,904 respectively.





Related party transactions



Mr. Zhenyong Liu has loaned money to Dongfang Paper for working capital purposes
over a period of time. On January 1, 2013, Dongfang Paper and Mr. Zhenyong Liu
renewed the three-year term loan previously entered on January 1, 2010, and
extended the maturity date further to December 31, 2015. On December 31, 2015,
the Company paid off the loan of $2,249,279, together with interest of $391,374
for the period from 2013 to 2015. Approximately $368,052 and $402,047 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, 2022, and 2021, respectively.




                                       54





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, 2022, and 2021, approximately $43,075
and $47,054 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 into 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 2022, and
2021, the outstanding interest was $197,338 and $215,565, 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, 2022, and 2021, total amount of loans due to Mr. Zhenyong Liu
were $nil. The interest expense incurred for such related party loans are $nil
for the years ended December 31, 2022 and 2021. The accrued interest payable to
Mr. Zhenyong Liu was approximately $608,465 and $664,666, as of December 31,
2022 and 2021, respectively, which was recorded in other payables and accrued
liabilities



On December 8, 2021, the Company entered into an agreement with Mr. Zhenyong
Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an amount of
$6,507,431 (RMB44,089,085). The loan is unsecured and carries a fixed interest
rate of 3% per annum. The loan was repaid by Mr. Zhenyong Liu in February 2022.



In October 2022 and November 2022, the Company entered into two agreements with
Mr. Zhenyong Liu, which allowed Mr. Zhenyong Liu to borrow from the Company an
amount of $7,179,163 (RMB50,000,000) in total. The loans were unsecured and
carried a fixed interest rate of 4.35% per annum. The loans were fully repaid by
Mr. Zhenyong Liu in February 2023.



As of December 31, 2022 and 2021, amount due to shareholder are $727,433, which
represent funds from shareholders to pay for various expenses incurred in the
U.S. The amount is due on demand with interest free.

Critical Accounting Policies and Estimates





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



Revenue Recognition Policy



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



Long-Lived Assets



The Company evaluates the recoverability of long-lived assets and the related
estimated remaining useful lives when events or circumstances lead management to
believe that the carrying value of an asset may not be recoverable and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. In such circumstances, those assets are written
down to estimated fair value. Our judgments regarding the existence of
impairment indicators are based on market conditions, assumptions for
operational performance of our businesses, and possible government policy toward
operating efficiency of the Chinese paper manufacturing industry. For the years
ended December 31, 2022 and 2021, 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.



                                       55

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, 2022 and 2021 to translate the Chinese RMB to the U.S. Dollars are
6.9646:1 and 6.3757:1, respectively. Revenues and expenses are translated using
the prevailing average exchange rates at 6.7573:1, and 6.4474:1 for the years
ended December 31, 2022 and 2021, 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 $4,862,211 (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 May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No.
2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which introduced the expected credit losses
methodology for the measurement of credit losses on financial assets measured at
amortized cost basis, replacing the previous incurred loss methodology. The
amendments in Update 2016-13 added Topic 326, Financial Instruments-Credit
Losses, and made several consequential amendments to the Codification. Update
2016-13 also modified the accounting for available-for-sale debt securities,
which must be individually assessed for credit losses when fair value is less
than the amortized cost basis, in accordance with Subtopic 326-30, Financial
Instruments- Credit Losses-Available-for-Sale Debt Securities. The amendments in
this Update address those stakeholders' concerns by providing an option to
irrevocably elect the fair value option for certain financial assets previously
measured at amortized cost basis. For those entities, the targeted transition
relief will increase comparability of financial statement information by
providing an option to align measurement methodologies for similar financial
assets. Furthermore, the targeted transition relief also may reduce the costs
for some entities to comply with the amendments in Update 2016-13 while still
providing financial statement users with decision-useful information. In
November 2019, the FASB issued ASU No. 2019-10, which to update the effective
date of ASU No. 2016-02 for private companies, not-for-profit organizations and
certain smaller reporting companies applying for credit losses, leases, and
hedging standard. The new effective date for these preparers is for fiscal years
beginning after December 15, 2022. The Company is currently evaluating the
impact of ASU 2019-05 will have on its consolidated financial statements.



In October 2021, the FASB issued ASU 2021-08, "Business Combinations". The
amendments in this Update address how to determine whether a contract liability
is recognized by the acquirer in a business combination and resolve the
inconsistency of measuring revenue contracts with customers acquired in a
business combination by providing specific guidance on how to recognize and
measure acquired contract assets and contract liabilities from revenue contracts
in a business combination. The amendments in this Update apply to all entities
that enter into a business combination within the scope of Subtopic 805-10,
Business Combination-Overalls. For public business entities, ASU 2021-08 is
effective for fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years. Early application is permitted. The
amendments in this Update should be applied prospectively to business
combinations occurring on or after the effective date of the amendments. The
Company does not expect the adoption of this standard to have a material impact
on its consolidated financial statements.

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