Tantech Holdings Ltd. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial figures are in U.S. dollars unless otherwise stated.
Business context
Tantech is a British Virgin Islands holding company with substantially all operations in China. Its businesses comprise bamboo-charcoal consumer products, charcoal-product trading, and electric and specialty vehicles through Shangchi Automobile, in which it reports a 70% interest. The company also holds minority investments in marble and basalt mining businesses. It reports under U.S. GAAP.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $42.28 million | $49.23 million |
| Gross profit / margin | $4.48 million / 10.6% | $5.98 million / 12.1% |
| Operating loss | $10.34 million | $8.91 million |
| Net loss | $10.02 million | $9.96 million |
| Net loss attributable to Tantech common shareholders | $6.52 million | $6.36 million |
| Operating cash flow | $14.17 million | $14.70 million |
- Revenue declined 14.1%; gross profit fell 25.1%, and gross margin contracted by 1.5 percentage points. Consumer products contributed $29.42 million, trading $12.48 million, and EV $0.38 million.
- Cash and cash equivalents were $37.12 million; restricted cash was $0.22 million. Current assets were $81.90 million versus current liabilities of $16.80 million, for reported working capital of $65.10 million and a 4.9:1 current ratio.
- Short-term bank loans were $5.56 million and bank acceptance notes payable were $1.75 million. Total liabilities were $16.80 million; total equity was $99.49 million.
- Net accounts receivable was $34.41 million, after a $3.70 million allowance. Receivables took 319 days to collect on average, compared with 269 days in 2019. Supplier advances were $6.85 million, plus $1.53 million advanced to a related-party vendor.
- Operating cash flow remained positive, but included substantial noncash impairment adjustments and working-capital movements, including collections and write-offs. Investing cash outflow was $0.12 million; financing cash inflow was $8.94 million, largely reflecting the November equity financing.
Material changes versus 2019
- COVID-19-related shutdowns and reduced production contributed to a 35.8% decline in consumer-product revenue, to $29.42 million.
- Trading revenue rose 269.3% to $12.48 million amid demand for charcoal used in masks, purification, and sanitation products. Trading gross margin fell sharply, from 32.8% to 5.4%, partly due to lower-margin orders.
- EV revenue was $0.38 million, largely commission income on vehicles sold for other manufacturers, alongside production and export of 10 fuel midibuses. The filing says Shangchi made no EV sales in 2020 or 2019.
- Tantech recorded a $12.00 million impairment of the EV manufacturing license and related intangible assets, versus $1.10 million in 2019. Management said Shangchi had no immediate plan to resume EV manufacturing. A separate $8.48 million goodwill impairment was recorded in 2019, not 2020.
- The company raised approximately $9.1 million net in a November 2020 registered offering of 6.06 million shares at $1.65 per share, and reported 35,894,097 shares outstanding at year-end. Warrants issued in connection with the offering add potential dilution.
Outlook, risks, contingencies, and unusual items
- Management said cash, operating cash flow, bank borrowing renewals, potential equity financing, and promised shareholder/affiliate support should provide liquidity for at least 12 months from the filing date. This outlook depends in part on collecting receivables and supplier advances and on government policy affecting EVs. No specific revenue or earnings guidance was provided.
- Management plans to develop specialty EVs, particularly driverless street sweepers, and said it intends to increase investment in this area in 2021. No driverless sweepers had been produced for sale by the filing date; the company acknowledged the strategy may fail. Its stated R&D spending was $0.89 million in 2020.
- Government EV rebates of $5.76 million remained receivable at year-end, relating to qualifying vehicles sold in 2016–2018. Processing delays and changing subsidy rules have led the company to pause or slow EV production. Tantech reported collecting $6.4 million, or 19% of year-end continuing-business receivables, through April 14, 2021.
- COVID-19 caused temporary production suspension from late January to mid-February 2020; operations fully resumed on March 23, according to the risk disclosures. The company warned that renewed outbreaks or continuing disruptions could affect demand, supply, collections, and operations.
- Customer, supplier, and channel concentration is significant: five customers represented 84% of 2020 charcoal-product sales, and two suppliers represented 70% of total purchases. One customer accounted for all Shangchi vehicle sales in 2020. About 92% of company sales were made through distributors.
- Related-party and contingent exposures merit attention. Tantech pledged property to guarantee a related party’s $1.5 million credit line through July 2023. It also remained a joint guarantor of a third party’s share-purchase obligation; the company said an affiliate’s counter-guarantee reduced its exposure and that payment by Tantech was considered unlikely. Related-party balances payable were $2.02 million, unsecured, interest-free, and due on demand.
- A former Shangchi general manager sued the company and Shangchi in March 2021 over an RMB 11.35 million (approximately $1.7 million) debt dispute. The company disputed the claim and estimated no liability should be recorded; the case was still under court investigation at filing.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2020. Cited material weaknesses included insufficient U.S. GAAP and SEC expertise and inadequate segregation of duties; weaknesses disclosed in 2019 had not been fully remediated. The auditor gave an unqualified opinion on the financial statements but did not opine on internal-control effectiveness.
- Other risks include the contractual VIE structure used to consolidate the vehicle business, China regulatory and currency-transfer risks, secured borrowing and refinancing risk, uninsurable PRC bank deposits, and limited business diversification. The company reported no dividends planned for the foreseeable future.
Most important facts for investors to verify
- Whether the $34.41 million net receivable balance and $6.85 million supplier advances are collectible or realizable, and how subsequent collections compare with management’s disclosures.
- The timing and collectability of the $5.76 million government rebate receivable, and the practical implications of continued EV production delays and the license impairment.
- Current liquidity after subsequent loan repayments, maturities, and other post-year-end financing or cash uses; confirm whether the stated shareholder support is documented and available.
- The status and maximum potential exposure under the related-party guarantee and share-purchase guarantee, including the enforceability and sufficiency of the counter-guarantee.
- Progress on remediating the disclosed material weaknesses, and whether future filings continue to report ineffective controls.
- The commercial progress, capital needs, customer pipeline, and production readiness of driverless street sweepers; also assess dilution from outstanding warrants and future equity financing.