Tantech Holdings Ltd. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone 2023 Q4 filing. Financial statements are prepared under U.S. GAAP. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Tantech is a British Virgin Islands holding company whose operations are substantially conducted through subsidiaries in mainland China. Its two reported segments are consumer products, including bamboo-charcoal household products and biodegradable packaging, and electric vehicles (EVs). The company also earns factoring interest income and holds minority interests in mining ventures. Its former VIE structure was dismantled in 2021.
Key financial results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $47.32 million | $53.49 million |
| Gross profit / margin | $10.17 million / 21.5% | $10.09 million / 18.9% |
| Operating income / margin | $1.83 million / 3.9% | $4.57 million / 8.5% |
| Net income | $5.02 million | $2.59 million |
| Net income attributable to Tantech common shareholders | $5.58 million | $3.02 million |
| Operating cash flow | $5.26 million | $8.29 million |
| Cash and restricted cash, year-end | $29.13 million | $18.98 million |
| Current assets / current liabilities | $115.67 million / $17.61 million | $106.76 million / $13.54 million |
| Total assets / total liabilities / equity | $141.69 million / $18.68 million / $123.01 million | $134.13 million / $18.20 million / $115.94 million |
Revenue fell 11.5%, while gross margin improved. Operating expenses rose 51.1% to $8.34 million, chiefly as general and administrative expense increased to $7.64 million, including higher receivables allowances. Net income benefited from $3.56 million in gains on subsidiary disposals and $2.18 million in factoring interest income; therefore, reported earnings include material non-core contributions. Income tax expense was $2.36 million.
Consumer-product revenue declined 15.7% to $44.63 million. EV revenue increased to $2.69 million from $0.52 million; EV gross margin improved to 10.5% from negative 3.4%. Consumer-products and EV gross margins were 22.2% and 10.5%, respectively. R&D expense was $0.47 million, up from $0.23 million.
Cash, debt, and working capital
Year-end current ratio was 6.6:1. Cash increased by $10.14 million during the year, but operating cash flow declined from $8.29 million to $5.26 million. Investing cash outflow was $2.58 million, primarily reflecting factoring receivables; financing provided $7.43 million, including equity issuance and convertible-note proceeds.
Year-end balances included $2.26 million of short-term bank loans, $3.52 million of third-party loans, and a $1.73 million convertible note, as well as $0.90 million due to related parties and $1.24 million of lease liabilities. The note carried 7% interest and was convertible at a market-linked price subject to a $1.20 floor. Following a January 2024 forbearance agreement, the company reported $1.98 million outstanding and $180,247 payable as compensation.
Accounts receivable, net, were $41.80 million, with a $4.76 million allowance; collection averaged 352 days, versus 290 days in 2022. The company reported collecting about $7.0 million, or 15% of year-end receivables, through May 16, 2024. Factoring receivables, net, were $42.54 million, after a $2.24 million credit-loss allowance; their reserve estimates were identified as a critical audit matter. Cash is held primarily in PRC banks and is largely above applicable deposit-insurance limits.
Material changes, outlook, and risks
- Management attributed the revenue decline mainly to weaker consumer demand and lower biodegradable-packaging sales; EV revenue rose. The company says specialty EVs could be a long-term growth driver, but also discloses that Shangchi has no immediate plan to start EV manufacturing. It prioritized other spending over EV R&D in 2023.
- The company expects to meet working-capital and capital-expenditure needs for the next 12 months using cash on hand, operating cash flow, and bank borrowing; it may seek further capital. No quantified revenue or earnings guidance is provided.
- A sale of Jikang Energy and Tantech Bamboo for approximately $0.7 million was associated with a reported $3.56 million disposal gain. The filing also says Tantech Charcoal was sold in March 2024 for approximately $0.3 million. Verify the disposal accounting and resulting business perimeter.
- Customer, supplier, and distribution concentration are significant: three customers represented approximately 71% of consolidated sales in 2023; three customers represented 81% of year-end receivables. Three suppliers represented about 70% of purchases, and about 97% of sales were through distributors. Separately, one customer accounted for 95% of Shangchi’s vehicle sales.
- A court judgment in a former Shangchi executive’s debt dispute was upheld in 2022. The company accrued the disputed amount and further interest; a court had ordered approximately $1.2 million in bank-account funds frozen, while the filing reports only $23,079 paid as of filing.
- Disclosure controls were deemed ineffective at December 31, 2023. The filing describes material weaknesses involving U.S. GAAP/SEC reporting expertise, transaction approvals, and segregation of duties, but its internal-control discussion refers to the December 31, 2022 assessment; clarify the current status and remediation.
- Key risks include PRC regulatory and cross-border listing requirements, restrictions on moving cash from China, currency movements, receivables recoverability, and reliance on concentrated customers, suppliers, and distributors. The auditor issued an unqualified opinion on the financial statements; it did not opine on internal-control effectiveness.
Most important facts for investors to verify
- Cash conversion and collectability: subsequent receipts against receivables, aging and allowance adequacy, and the quality and collateral enforceability of factoring receivables.
- Debt obligations and timing, especially the third-party loans, bank loan maturity, and the convertible note’s post-forbearance terms and potential dilution.
- The basis for the $3.56 million disposal gain versus the approximately $0.7 million sale consideration, and the financial impact of the 2024 subsidiary disposals.
- Whether management’s ineffective-control finding and listed material weaknesses remain unresolved, and progress in hiring and control remediation.
- Potential dilution from the May 2024 private placement: approximately $2.1 million gross proceeds plus pre-funded and reset-price warrants; verify the eventual share count and reset terms.