Tantech Holdings(TANH) - 2024 Q4 - Annual Report

Part I Key Information This section outlines the company's BVI holding structure, PRC regulatory risks, cash flow and dividend policies, and presents key historical financial data and comprehensive risk factors Corporate Structure and Regulatory Disclosures Tantech Holdings Ltd operates as a BVI holding company with PRC subsidiaries, facing regulatory risks from evolving PRC laws and future filing requirements, while its US-based auditor mitigates immediate HFCAA delisting risk - Tantech Holdings Ltd operates as a BVI holding company through PRC subsidiaries, without a Variable Interest Entity (VIE) structure[15] - The company holds all necessary PRC government permits for current operations and believes it is not subject to CAC cybersecurity review due to processing personal information for fewer than one million users[23][30] - As an "Existing Issuer" listed before March 31, 2023, the company is not required to undertake an immediate initial filing with the CSRC under new Listing Records Rules, but must file for subsequent offerings[27] - The company's auditor, YCM CPA INC., is a US-based PCAOB-registered firm subject to regular inspections, mitigating immediate delisting risk under the HFCAA[37] Cash Flows and Dividend Policy Tantech, as a holding company, relies on PRC subsidiary dividends for funding, which are restricted by statutory reserve requirements and currency controls, leading to no dividends paid to date and a policy of retaining future earnings - The company relies on dividends from PRC subsidiaries, but PRC law restricts distribution by requiring allocation of net income to a statutory surplus reserve until it reaches 50% of registered capital[40] - The company has not declared or paid any cash dividends, intending to retain earnings for business operations and expansion[48] Working Capital Loans to Subsidiaries | Year | Amount (USD) | Recipient(s) | | :--- | :--- | :--- | | 2024 | $7.3 million | EPakia Inc. | | 2023 | $6.82 million | Tantech Bamboo Charcoal Co., Ltd., EPakia Inc., EPakia Canada Inc. | | 2022 | $9.27 million | USCNHK Group Limited, EPakia Inc., EPakia Canada Inc., EAG International Vantage Capitals Limited. | Selected Financial Data The company's revenue declined from $53.0 million in 2022 to $42.9 million in 2024, resulting in a net loss of $3.6 million in 2024, while total assets and equity steadily increased Selected Statement of Operations Data (in thousands of U.S. dollars) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Revenues | $42,940 | $44,631 | $52,970 | | Gross profit | $8,943 | $9,717 | $10,110 | | Income from operations | $3,984 | $3,659 | $5,934 | | Net income (loss) | $(3,566) | $5,018 | $2,586 | | Net income (loss) attributable to common stockholders | $(3,242) | $5,583 | $3,021 | | Earnings (loss) per share - Basic | $(7.66) | $80.69 | $121.21 | Selected Balance Sheet Data (as of Dec 31, in thousands of U.S. dollars) | | 2024 | 2023 | 2022 | |:---|---:|---:|---:| | Total assets | $142,952 | $141,687 | $134,132 | | Total liabilities | $14,676 | $18,682 | $18,197 | | Total equity | $128,276 | $123,005 | $115,935 | Selected Consolidated Financial Schedule (in thousands of U.S. dollars) | For the year ended Dec 31, | Tantech Holding | Non-PRC Subsidiaries | PRC Subsidiaries | Eliminations | Consolidated Total | |:---|---:|---:|---:|---:|---:| | 2024 Revenues | $- | $707 | $42,233 | $- | $42,940 | | 2024 Net Loss | $(3,242) | $(946) | $5,994 | $(5,372) | $(3,566) | | 2023 Revenues | $- | $1,583 | $43,485 | $(437) | $44,631 | | 2023 Net Income | $5,583 | $(834) | $6,931 | $(6,662) | $5,018 | | 2022 Revenues | $- | $14 | $53,093 | $(137) | $52,970 | | 2022 Net Income | $3,021 | $(288) | $4,118 | $(4,265) | $2,586 | Risk Factors The company faces significant business and industry risks, including economic dependence on China, intense competition, and supply chain vulnerabilities, alongside substantial regulatory and market risks specific to operating in China and being a foreign private issuer - Business Risks: The company faces risks from a weakening Chinese economy, competition from larger brands, supply chain disruptions for bamboo charcoal, and high customer concentration in its charcoal product segments[61][63][71][92] - New Business Risks: Expansion into biodegradable packaging and commercial factoring faces competition, while mining investments are subject to operating hazards, regulatory changes, and substantial capital requirements[77][78][79] - China-Specific Regulatory Risks: The company is subject to PRC government intervention, evolving laws on overseas listings and data security (CSRC, CAC), and currency conversion controls, with non-compliance potentially hindering capital market access[119][126][130] - Market & Ownership Risks: The company's shares face potential Nasdaq delisting for failing to meet listing requirements and the risk of classification as a Passive Foreign Investment Company (PFIC), leading to adverse U.S. tax consequences for shareholders[189][200] Information on the Company Tantech manufactures bamboo-based charcoal products under the "Charcoal Doctor" brand, has expanded into biodegradable packaging and construction materials, discontinued its EV business, and holds minority mining interests, operating under a BVI holding structure History and Development Founded in 2002, Tantech diversified from bamboo charcoal, undergoing a Nasdaq IPO, acquiring and divesting its EV business, expanding into biodegradable packaging and construction materials, and executing multiple share consolidations - The company acquired a 70% equity interest in Shangchi Automobile in July 2017 but subsequently sold all equity and discontinued the EV business segment as of May 15, 2025[213][221] - The company has undergone multiple share consolidations, including a one-for-ten split in February 2022, a one-for-twenty-four split in November 2022, and a one-for-forty split in February 2025[217][221] - Recent strategic moves include expanding into the U.S. with a biodegradable packaging business (EPakia Inc.) in 2022 and a sustainable construction materials business (GOHOMEWAY INC) in December 2024[217][221] Business Overview Tantech's core business is bamboo-based charcoal products under the "Charcoal Doctor" brand, with recent expansions into biodegradable packaging, commercial factoring, and minority mining interests, while discontinuing its EV business and facing competition in the growing Chinese bamboo industry - The company's primary business is bamboo-based charcoal products sold under the "Charcoal Doctor" brand for purification and cleaning, and the "Algold" brand for BBQ charcoal[220][251][253] - The Electric Vehicle (EV) business, operated through Shangchi Automobile, was officially discontinued and sold in May 2025, having previously produced specialty vehicles, fuel buses, and autonomous street sweepers[270][285] - The company has expanded into new business lines, including biodegradable packaging and commercial factoring services, which generated revenue and financing interest income in fiscal 2022, 2023, and 2024[287][288] - The company holds six patents for charcoal products and two for vehicles, relying on its "Charcoal Doctor" trademark for product recognition[324][325][326] - The company faces significant competition from larger household hygiene brands like Blue Moon and Mr. Muscle, and other bamboo charcoal product companies like Zhejiang Maitanweng[63][308] Organizational Structure Tantech Holdings Ltd operates as a BVI holding company through a network of subsidiaries in the PRC, US, and Hong Kong, having dismantled its previous VIE arrangement in August 2021 for direct equity ownership - Tantech Holdings Ltd is a BVI-incorporated holding company[357] - Key subsidiaries include Euroasia International Vantage Capitals Limited (Hong Kong), EPakia Inc. (USA), GOHOMEWAY INC (USA), and several PRC-based operating entities like Zhejiang Shangnilai Technology Co., LTD[353][383][385][398][399] - The company dismantled its VIE structure in August 2021, now controlling operating subsidiaries through direct equity ownership[370] Property, Plants and Equipment The company primarily operates from leased facilities in Lishui, Zhejiang, for charcoal product production and R&D, with its solid deodorant line operating at 121% capacity in 2024, while BBQ charcoal production ceased due to environmental requirements - The company's main production facility is the rented Shuige Industrial Zone facility in Lishui, used for charcoal product production, R&D, and administration[402][406][407] Production Capacity Utilization (FY 2024) | Production Line | Space Utilization | Capacity Utilization | | :--- | :--- | :--- | | Solid Deodorant & Purification | 84.3% | 121% | | Liquid Household Hygiene | 80.0% | 45.0% | | Barbecue Charcoal | 0% | 0% | | Street Sweeper Assembly | 100% | 0% | - The company voluntarily stopped producing BBQ charcoal products due to stricter local environmental requirements[404] Operating and Financial Review and Prospects (MD&A) The company's FY2024 revenue from continuing operations decreased by 3.8% to $42.9 million, resulting in a net loss of $2.5 million due to warrant liability losses, while maintaining strong liquidity with $35.2 million in cash and a 10.0:1 current ratio Operating Results FY2024 revenues from continuing operations decreased 3.8% to $42.9 million, leading to a net loss of $2.5 million from continuing operations, primarily due to a $3.8 million loss on warrant liabilities and a $1.1 million loss from discontinued EV operations Financial Performance Comparison (FY2024 vs FY2023, in millions USD) | Metric | FY 2024 | FY 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $42.9 | $44.6 | (3.8)% | | Gross Profit | $8.9 | $9.7 | (8.0)% | | Income from Operations | $4.0 | $3.7 | 8.9% | | Net (Loss) Income from Continuing Ops | $(2.5) | $6.9 | (136.0)% | | Net (Loss) Income | $(3.6) | $5.0 | (171.1)% | - The 3.8% decrease in 2024 revenue was primarily due to reduced demand for carbon products in household cleaning, linked to a sluggish real estate market[430] - The company recognized a $3.8 million loss from the change in fair value of warrant liabilities and a $0.5 million loss from the change in fair value of its convertible note in fiscal 2024[443][444] - The Electric Vehicle (EV) business, classified as a discontinued operation, contributed a net loss of $1.1 million in 2024, $1.9 million in 2023, and $1.5 million in 2022[417][454] Liquidity and Capital Resources As of December 31, 2024, the company maintained strong liquidity with $35.2 million in cash and a 10.0:1 current ratio, supported by $4.0 million in operating cash flow and $3.5 million from financing activities, deemed sufficient for future needs Key Liquidity Metrics (as of Dec 31, 2024, in millions USD) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $35.2 | | Current Assets | $117.8 | | Current Liabilities | $11.8 | | Working Capital | $106.0 | | Current Ratio | 10.0:1 | Summary of Cash Flows (FY 2024, in millions USD) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $4.0 | | Net cash used in investing activities | $(1.9) | | Net cash provided by financing activities | $3.5 | | Net increase in cash | $6.1 | - Accounts receivable turnover days remained high at 346 days in 2024, with approximately $9.1 million (26%) of year-end accounts receivable collected by April 30, 2025[458][459] Directors, Senior Management, and Employees The company's leadership includes CEO Wangfeng Yan and CFO Weilin Zhang, with a five-member board comprising three independent directors, overseeing 46 full-time employees in continuing operations as of December 31, 2024 Directors and Senior Management The company's leadership team includes CEO Wangfeng Yan, CFO Weilin Zhang, and COO Mingqin Dong, with a Board of Directors chaired by Yefang Zhang and comprising three independent directors - Key executive officers are Wangfeng Yan (CEO), Weilin Zhang (CFO & Director), and Mingqin Dong (COO)[484] - The Board is chaired by Yefang Zhang and includes three independent directors: Mengqi Liao, Hongdao Qian, and Shudong Wang[484] Compensation In FY2024, executive compensation primarily consisted of salaries, with CEO Wangfeng Yan receiving $28,288 and CFO Weilin Zhang $30,813, while Chairwoman Yefang Zhang received $129,425 for her subsidiary officer role Executive Compensation (FY 2024) | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Wangfeng Yan | CEO | 28,288 | | Weilin Zhang | CFO | 30,813 | | Mingqin Dong | COO | 8,338 | | Zhengyu Wang | Former Director / CEO of Epakia Inc. | 125,355 | Director Compensation (FY 2024) | Name | Fees/Other Compensation ($) | Total ($) | | :--- | :--- | :--- | | Yefang Zhang | 129,425 (as subsidiary officer) | 129,425 | | Weilin Zhang | 30,813 (as CFO) | 30,813 | | Mengqi Liao | 10,000 | 10,000 | | Shudong Wang | 8,473 | 8,473 | | Hongdao Qian | 8,473 | 8,473 | Board Practices The five-member Board of Directors, with a majority of independent members, separates CEO and Chairman roles and operates three fully independent committees: Audit, Compensation, and Nominating - The board has five directors, with a majority being independent, and the roles of CEO and Chairman are separated[509][511] - The company has fully independent Audit, Compensation, and Nominating committees, with Mengqi Liao designated as the audit committee financial expert[512][513] Employees As of December 31, 2024, the company employed 46 full-time staff in continuing operations, primarily in Production & Procurement and Finance, and contributed approximately $99,340 to employee benefits in compliance with PRC law Employee Headcount (Continuing Operations) | Department | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Senior Management | 5 | 5 | 5 | | HR & Admin | 3 | 11 | 7 | | Finance | 12 | 15 | 11 | | R&D | 1 | 3 | 3 | | Production & Procurement | 20 | 18 | 22 | | Sales & Marketing | 5 | 7 | 3 | | Total | 46 | 61 | 51 | - The company contributed approximately $99,340 to employee benefit and social insurance plans in 2024, in compliance with PRC law[529] Major Shareholders and Related Party Transactions As of May 14, 2025, Streeterville Capital LLC was the only major shareholder with 5.24% ownership, while the company engages in related party transactions including loans, leases, and loan guarantees with entities linked to controlling shareholder Zhengyu Wang and Chairwoman Yefang Zhang - As of May 14, 2025, Streeterville Capital LLC is listed as a 5.24% beneficial owner[546] - The company borrowed funds from controlling shareholder Zhengyu Wang and his affiliates for working capital, with a balance of $730,658 as of December 31, 2023, which was cleared by year-end 2024[553] - The company leased parts of its production facilities to related parties controlled by Chairwoman Yefang Zhang (Nongmi Food, Nongmi Biotechnology, Nongmi Ecological)[556][557][558] - Controlling shareholder Zhengyu Wang, Chairwoman Yefang Zhang, and their affiliated companies provided personal and corporate guarantees for the company's bank loans[559] Financial Information This section references consolidated financial statements, discloses an ongoing legal proceeding against discontinued subsidiary Shangchi Automobile for a $1.2 million debt, and reiterates the company's policy of retaining earnings with no foreseeable dividend payments - The company is involved in a legal proceeding from a debt dispute against its discontinued subsidiary, Shangchi Automobile, with a final judgment ordering a payment of RMB 5.5 million principal plus interest, leading to a $1.2 million freeze in company bank accounts[564][565][566][568] - The company has not declared or paid dividends and has no present plan to do so, intending to retain earnings for business operations and expansion[569] Additional Information This section details PRC foreign exchange controls and dividend restrictions, outlines the 25% Enterprise Income Tax for PRC subsidiaries, and highlights the significant risk of the company being classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes - The company's ability to use foreign currency capital in the PRC is governed by SAFE regulations (e.g., Circular 142, 19, 16), restricting funds to approved business scope and limiting use for domestic equity investments or certain loan repayments[580][343][346] - Dividend distributions from PRC subsidiaries are limited to after-tax profits calculated under PRC GAAP and require setting aside at least 10% of after-tax profit for a statutory reserve until it reaches 50% of registered capital[585] - The company's PRC subsidiaries are subject to a 25% Enterprise Income Tax (EIT) rate, while the company itself is exempt from BVI income tax[589][590] - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, resulting in unfavorable tax treatment for U.S. shareholders on distributions and gains from share sales[601] Market Risk Disclosures The company's primary market risks are foreign exchange risk due to RMB/USD fluctuations impacting reported financial results, and commodity risk from reliance on bamboo charcoal, with no hedging instruments currently employed - The company is exposed to foreign exchange risk as its functional currency is RMB, with financial statements in USD, resulting in a currency translation loss of $(4.2) million in 2023 and a gain of $86,797 in 2024[617][619] - The company faces commodity risk from potential price increases of its primary raw material, bamboo charcoal, and does not use hedging instruments to manage this risk[620] Controls and Procedures As of December 31, 2024, management concluded that disclosure controls and internal control over financial reporting were ineffective due to material weaknesses including a lack of skilled personnel, inadequate approval procedures, and insufficient segregation of duties, with remediation plans underway - Management concluded that both disclosure controls and procedures and internal control over financial reporting were not effective as of December 31, 2024[625][627] - Three material weaknesses were identified: 1) lack of skilled U.S. GAAP/SEC reporting personnel, 2) inadequate approval procedures for material transactions, and 3) lack of segregation of duties[628] - Remediation plans include recruiting an internal control manager, hiring additional professional staff or consultants, improving approval processes, and conducting training[632][643] Corporate Governance and Other Disclosures This section details corporate governance, including the designation of Mengqi Liao as an audit committee financial expert, audit fees paid to YCM CPA INC. ($285,000 in FY2024), adherence to BVI corporate law as a foreign private issuer, and the implementation of a cybersecurity risk management program Principal Accountant Fees (YCM CPA INC.) | Fee Type | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $285,000 | $280,000 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | - The Board has designated Mengqi Liao as the "audit committee financial expert"[634] - As a foreign private issuer, the company follows BVI corporate law instead of Nasdaq's shareholder approval requirements for certain equity issuances, such as those exceeding 20% of outstanding stock[646] - The company has implemented a cybersecurity risk management process with Board oversight, reporting no material cybersecurity incidents to date[650][652][653] Financial Statements Report of Independent Registered Public Accounting Firm YCM CPA INC. issued an unqualified opinion on the consolidated financial statements, identifying the evaluation of the reserve for financing receivables as a Critical Audit Matter due to subjective judgments in assessing recoverability - The auditor, YCM CPA INC., issued an unqualified (clean) opinion on the company's consolidated financial statements[673] - A Critical Audit Matter was identified concerning the "Evaluation of the reserve for financing receivables" due to the significant management judgment required to assess recoverability[677][678] Consolidated Financial Statements Analysis The consolidated balance sheets show total assets increasing to $143.0 million in 2024, while the statement of operations reflects a net loss of $3.6 million, a significant downturn from 2023, despite $4.0 million in positive operating cash flow Consolidated Balance Sheet Highlights (in millions USD) | As of December 31, | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $35.2 | $29.1 | | Accounts receivable, net | $32.6 | $41.8 | | Financing receivables, net | $43.1 | $42.5 | | Total Assets | $143.0 | $141.7 | | Total Current Liabilities | $11.8 | $17.6 | | Total Liabilities | $14.7 | $18.7 | | Total Equity | $128.3 | $123.0 | Consolidated Statement of Operations Highlights (in millions USD) | For the year ended Dec 31, | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues | $42.9 | $44.6 | $53.0 | | Gross Profit | $8.9 | $9.7 | $10.1 | | Net (Loss) Income from Continuing Ops | $(2.5) | $6.9 | $4.0 | | Net Loss from Discontinued Ops | $(1.1) | $(1.9) | $(1.5) | | Net (Loss) Income | $(3.6) | $5.0 | $2.6 | Consolidated Statement of Cash Flows Highlights (in millions USD) | For the year ended Dec 31, | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $4.0 | $5.3 | $8.3 | | Net cash used in investing activities | $(1.9) | $(2.6) | $(45.0) | | Net cash from financing activities | $3.5 | $7.4 | $15.3 | | Net increase (decrease) in cash | $6.1 | $10.1 | $(24.6) | Notes to Consolidated Financial Statements The notes detail the divestiture of the EV business as a discontinued operation, the $43.1 million in net financing receivables from the new factoring business, the impact of a convertible note and warrants on financial results, and the effects of multiple reverse stock splits - Discontinued Operations: The EV Business was sold on May 15, 2025, with historical results reclassified as discontinued operations, reporting a net loss of $1.1 million for 2024[761][762][765] - Financing Receivables: The company's factoring business resulted in net financing receivables of $43.1 million as of Dec 31, 2024, generating $1.8 million in net financing interest income in 2024[768] - Convertible Note: A convertible note with Streeterville Capital, subject to an exchange agreement, resulted in a $0.5 million loss in 2024 from fair value adjustments, with portions converted into 8.9 million common shares[780][781][782] - Warrants: Warrants issued in April 2024 are classified as liabilities and re-measured at fair value, causing a $3.8 million non-cash loss in the statement of operations for 2024[806][810][711] - Stock Splits: The company has executed several reverse stock splits, including a 1-for-40 split effective February 13, 2025, with all share and per-share data retroactively adjusted[801][802]