Tantech Holdings Ltd. — FY2021 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; quarterly results are not provided in the supplied text. Financial statements are prepared under U.S. GAAP and amounts below are in U.S. dollars unless stated otherwise.
Business context
Tantech is a British Virgin Islands holding company conducting substantially all operations through subsidiaries in China. Its two reported segments are consumer products, primarily bamboo-charcoal purification and cleaning products, and electric vehicles (EVs), including specialty vehicles and driverless street sweepers. The company ended its VIE arrangements on August 3, 2021 and thereafter held the relevant interests through direct equity ownership. It owns 70% of Shangchi Automobile; a third party holds the remaining 30%.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $55.3 million | $42.3 million |
| Gross profit / margin | $10.4 million / 18.9% | $4.5 million / 10.6% |
| Operating loss | $8.5 million | $10.3 million |
| Net loss | $10.7 million | $10.0 million |
| Net loss attributable to Tantech common stockholders | $8.4 million | $6.5 million |
| Operating cash flow | $(8.1) million | $14.2 million |
| Cash, including restricted cash | $43.6 million | $37.3 million |
| Current assets / current liabilities | $105.8 million / $21.8 million | $81.9 million / $16.8 million |
| Total assets / total liabilities | $134.5 million / $22.0 million | $116.3 million / $16.8 million |
- Revenue grew 30.7%. Consumer-products revenue rose 27.5% to $53.4 million; EV-segment revenue increased to $1.9 million from $0.4 million.
- Gross margin improved, which management attributed mainly to higher consumer-product selling prices and lower unit costs from greater in-house production. FY2021 gross margins were 18.7% for consumer products and 24.2% for EVs.
- Operating expenses were $18.9 million, including $8.1 million of research and development (up from $0.9 million) and $1.8 million of share-based compensation. A $5.8 million EV manufacturing-rebate receivable was fully reserved; the filing also describes this as a write-off.
- FY2021 financing cash inflow was $12.8 million, including $19.4 million of net equity proceeds, partly offset by debt and related-party repayments. Investing activities provided $0.5 million. Cash increased by $6.2 million overall.
- At year-end, bank loans were $4.7 million and unsecured third-party loans were $7.0 million, carrying 6% interest and due in December 2022. Related-party payables were $1.85 million, unsecured, interest-free and due on demand. Bank loans were secured by property; the filing also identifies restrictive debt covenants.
- Working capital was $84.0 million and the stated current ratio was 4.9:1. Net accounts receivable were $45.0 million, with a $3.7 million allowance; collection took 262 days on average. Subsequent to year-end through June 30, 2022, the company reported collecting $22.6 million, or 46% of year-end receivables.
Material changes and notable items
- Revenue rebounded from the FY2020 decline associated with COVID-19 disruptions. In FY2021, consumer-product sales benefited from demand for charcoal-based masks, air purification and sanitation products; production shifted more toward the company’s own facilities as demand conditions changed.
- EV-related R&D spending rose sharply. The company reported selling 37 driverless street sweepers in 2021, but EV revenue remained small relative to the consumer-products business. One customer represented 77% of Shangchi vehicle sales.
- The company recorded no FY2021 impairment charge for the EV manufacturing license, but fully reserved the $5.8 million rebate receivable after policy changes made successful collection remote. Management reported no immediate plan to begin EV manufacturing.
- FY2021 income-tax expense was $2.4 million despite a pretax loss of $8.3 million. The filing attributes tax rates partly to subsidiaries’ tax status and deferred-tax valuation allowances.
- Two FY2021 equity financings generated net proceeds of approximately $19.4 million. The company issued 1.6 million pre-reverse-split shares to employees, valued at $1.84 million.
- A $10.35 million balance was transferred in October 2021 to an entrusted bank account under the chairman and former CEO’s name. The company says the funds and $144,851 interest were returned by April 6, 2022 and remained under its treasurer’s custody and control during the period.
- In a lawsuit brought by a former Shangchi general manager, a court ordered Shangchi to pay approximately $1.4 million plus interest and costs; the company appealed in January 2022. The company had accrued the disputed amount and additional interest. A separate guarantee-related dispute involving a third party’s share-purchase obligation was reported settled after outstanding amounts were paid.
Outlook, risks and controls
Management gave no formal numeric revenue or earnings guidance. It expects specialty EVs, particularly smart sanitation vehicles, to be a potential long-term growth driver and planned further EV investment in 2022. Management said cash, collections, renewed borrowing, possible equity financing and shareholder/affiliate support should provide liquidity for at least 12 months from the report date. It also said future operations depend on receivable collection, realization of supplier advances and government policy affecting EVs.
- China-related risks: regulatory and policy changes, cross-border capital and currency controls, limits on moving funds from China, and uncertainty around overseas offerings and data rules. The filing says the company’s auditor was U.S.-based and PCAOB-inspected at the time, while warning of future HFCAA-related risk.
- Operating concentration: most sales are through distributors; four charcoal-product customers accounted for about 22%, 20%, 19% and 14% of charcoal sales as described in the risk section. Two suppliers represented 65% of purchases. EV sales are especially customer-concentrated.
- COVID-19 and market risks: renewed disruptions could affect production, sales, collections and supply. The company also faces raw-material cost, competition, EV technology, subsidy, licensing and product-safety risks.
- Liquidity and governance: cash is held in PRC banks and is not insured. Certain property secures company loans and a guarantee for a related party’s loan. The company reported related-party transactions, including property leasing and the entrusted account described above.
- Internal controls: management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2021. Reported material weaknesses included insufficient U.S. GAAP and SEC expertise, inadequate approval procedures for certain material transactions and limited segregation of duties. These weaknesses were not fully remediated.
- Subsequent developments: the company completed a 1-for-10 reverse split in February 2022 and a March 2022 offering that generated approximately $11.4 million gross proceeds. Nasdaq notified it that the bid price was below $1.00 and set a November 14, 2022 compliance deadline.
Most important facts for investors to verify
- Whether the $22.6 million of subsequent receivable collections were realized in cash and whether remaining receivables and supplier advances are recoverable.
- The final outcome and payment exposure from the former Shangchi manager’s lawsuit and the status of the $422,832 restricted cash linked to the case.
- How the $5.8 million rebate reserve, changed Chinese subsidy rules and continued EV investment affect reported results and cash requirements.
- Whether related-party balances, guarantees, leases and the 2021 entrusted-account transaction were appropriately authorized, controlled and disclosed.
- Progress in remediating internal-control weaknesses, and the reliability of financial reporting given the change in auditor for FY2021.
- Post-reverse-split share count, outstanding warrants and subsequent financings, as well as the company’s Nasdaq listing compliance status.