Business Context and Reporting Period
This Form 6-K filing by Tantech Holdings Ltd. covers the month of December 2017. The report details a material modification to sales contracts entered into in September 2017 between Tantech's 70% owned subsidiary, Suzhou E Motors Buses Co., Ltd., and Zhenjiang Baichuan New Energy Automobile Co., Ltd.
Key Financial Metrics and Transaction Details
- Total Contract Value: Approximately $20 million (RMB128.8 million) for 450 all-electric vans (EVs).
- Amended Transaction Scope: Reduced to an initial purchase of 100 EVs pending performance evaluation.
- Payments Received: As of December 11, 2017, the Buyer has paid a total of RMB10 million.
- Payment Breakdown:
- RMB8.4 million (30% of the price for 100 EVs).
- RMB1.6 million (Guarantee fund to secure future terms).
- Remaining Balance: RMB19.6 million for the initial 100 EVs, payable after four months of operation.
Material Changes Versus Prior Period
The filing reports a significant deviation from the original September 2017 agreement:
- Volume Reduction: The immediate purchase obligation was reduced from 450 EVs to 100 EVs.
- Payment Terms: The requirement to pay 30% of the total contract value by November 1, 2017, was replaced by a staggered payment structure tied to the performance of the initial 100 units.
- Delivery Schedule: Delivery of the remaining 350 EVs is contingent upon the successful operation of the first batch during the winter of 2018.
Outlook, Risks, and Management Commentary
Reason for Modification: The Buyer requested the change because the EVs are destined for the Northeast region of China, where they must endure extremely cold winter conditions. The vehicles had not previously been tested for extended use in such environments, and no reliable operating data was available.
Risks and Contingencies:
- Performance Risk: Future revenue recognition for the remaining 350 EVs is contingent on the Buyer's satisfaction with the winter performance of the initial 100 units.
- Cash Flow Impact: The receipt of the remaining RMB19.6 million for the first batch is delayed until after four months of operation.
Management Action: The parties mutually agreed to the modification on December 8, 2017, to allow the Buyer time to evaluate performance while securing Tantech's production plans via the guarantee fund.
Key Facts for Investor Verification
- Verify the operational performance of the 100 EVs delivered in late 2017 during the winter of 2018.
- Monitor the timeline for the release of the remaining RMB19.6 million payment for the initial batch.
- Assess the likelihood of the Buyer exercising the option to purchase the remaining 350 EVs based on winter test results.
- Confirm the impact of this delayed revenue recognition on Tantech's 2017 and 2018 financial statements.