TANTECH HOLDINGS LTD annual report, Q4 FY2022

Tantech Holdings Ltd. — FY2022 Form 20-F

Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report; the filing does not provide a clear Q4-only financial result. The company is a British Virgin Islands holding company with most operations in mainland China. Its businesses include bamboo-charcoal consumer products, vehicles, biodegradable packaging, and commercial factoring.

Financial performance and liquidity

Metric	FY2022	FY2021
Revenue	$53.49 million	$55.26 million
Gross profit / margin	$10.09 million / 18.9%	$10.43 million / 18.9%
Operating income (loss)	$4.57 million	$(8.51) million
Net income (loss)	$2.59 million	$(10.69) million
Net income (loss) attributable to common shareholders	$3.02 million	$(8.36) million
Operating cash flow	$8.29 million	$(8.09) million
Cash and restricted cash at year-end	$18.98 million	$43.57 million
Current assets / current liabilities	$106.76 million / $13.54 million	$105.81 million / $21.77 million
Total assets / total liabilities	$134.13 million / $18.20 million	$134.53 million / $21.99 million

Gross margin was unchanged year over year; FY2022 operating and net results improved primarily as operating expenses fell sharply. Net income attributable to common shareholders exceeded consolidated net income because of losses attributable to noncontrolling interests. The filing reports basic earnings per share of $3.03, retroactively adjusted for share consolidations.

Revenue mix: Consumer products generated $49.01 million, down about 8.2%; EV revenue was $0.52 million, down from $1.85 million; newly launched biodegradable packaging generated $3.96 million. Factoring generated $1.40 million of financing interest income, reported outside revenue.
Segment margins: Consumer products 20.4%; EV (3.4%); biodegradable packaging 2.7%. The EV segment generated a gross loss.
Expenses and tax: Operating expenses declined 70.9% to $5.52 million, including R&D expense of $0.23 million versus $8.05 million in 2021. Income tax expense was $3.14 million on pretax income of $5.73 million.
Cash flows: Investing activities used $45.00 million, mainly from funding factoring receivables. Financing activities provided $15.29 million, including approximately $10.12 million net proceeds from equity issuance. Cash fell by $24.59 million during the year, including a $3.17 million adverse foreign-exchange effect.
Factoring and working capital: Net financing receivables were $43.86 million at year-end, secured by pledged customer receivables stated to have a $46.16 million carrying value. Accounts receivable, net, was $40.17 million; the company reported a $4.16 million allowance and 290-day receivables turnover.
Debt and liquidity: Short-term bank loans were $3.64 million, and third-party loans were $3.40 million, classified as long-term at year-end. Related-party balances payable were $1.05 million; lease liabilities totaled $1.42 million. Management said working capital should support operations for at least 12 months, while noting it may seek additional borrowing or equity financing.

Material changes and unusual items

Revenue declined 3.2%, as weaker consumer-product and EV sales more than offset the new packaging business. Management attributed softer demand to economic conditions and described the packaging business as expected to grow.
Operating income returned to profit mainly because total operating expenses fell by $13.43 million. This included lower R&D spending, lower general and administrative costs, and no repeat of 2021 share-based compensation.
The company began commercial factoring in 2022. The $43.86 million year-end financing-receivable balance and its recoverability were identified as a critical audit matter.
The company conducted one-for-ten and one-for-twenty-four share consolidations in 2022, and issued shares in a public offering. Outstanding shares were 1,217,906 at year-end, after retroactive adjustment for the consolidations.
Foreign-currency translation reduced comprehensive results by $9.30 million, despite positive net income.

Outlook, risks and contingencies

Management expects biodegradable-packaging revenue to increase and describes specialty vehicles, including driverless street sweepers, as a potential longer-term opportunity. However, it reported no immediate plan to begin EV manufacturing and had impaired the EV manufacturing license in 2020; the filing gives no quantified revenue or earnings guidance.
Customer and supplier concentration, reliance on distributors, slow collections, and exposure to Chinese consumer demand pose operating risks. Three customers accounted for approximately 65% of FY2022 sales; one customer represented 77.68% of Shangchi Automobile’s vehicle sales. Three customers represented 83% of year-end accounts receivable.
A final court judgment upheld a debt ruling in favor of former Shangchi general manager Hengwei Chen. The company accrued the disputed amount and further interest; a court order froze approximately $1.3 million in bank accounts. The filing says only $23,760 had been paid as of its filing date.
The company guaranteed a related party’s bank line of credit of RMB 10 million (about $1.6 million), secured by company land and buildings; the guarantee was stated to expire July 8, 2023. Most cash is held in uninsured PRC bank accounts, and restrictions on currency conversion and transfers may constrain access to funds.
PRC regulatory, data-security, overseas-listing filing, foreign-exchange, and political risks could affect operations or the Nasdaq listing. The company stated that it had no VIE structure and believed it had required operating permits; it was treated as an existing overseas issuer under PRC listing-filing rules effective March 31, 2023, with future filings potentially required for specified events or offerings.
The auditor issued an unqualified opinion on the financial statements. Management nevertheless concluded disclosure controls and internal control over financial reporting were ineffective, citing weaknesses in U.S. GAAP/SEC reporting expertise, transaction approvals, and segregation of duties. The auditor was not engaged to audit internal control effectiveness.
No dividends have been paid, and management does not expect to pay them in the foreseeable future. The company reported no material defaults on debt payments.

Key investor verification points

Assess the collectability, collateral, maturity profile, and subsequent cash receipts for the $43.86 million factoring receivable; the filing does not provide a complete borrower-by-borrower breakdown here.
Check subsequent collections and aging of accounts receivable, customer concentration, and the adequacy of the $4.16 million allowance.
Review the status and remaining financial exposure from the Chen judgment, frozen funds, and the related-party guarantee secured by company property.
Track progress remediating the disclosed material weaknesses in financial reporting controls and any subsequent auditor or control developments.
Verify available cash at the operating subsidiaries, debt maturities and covenant compliance, and the company’s ability to transfer funds from China.
Confirm the implementation of PRC overseas-listing filing and confidentiality requirements, and monitor PCAOB inspection access and Nasdaq listing status.
Reconcile share counts and potential dilution from offerings, reverse splits, warrants, and any subsequent issuances.