Tantech Holdings(TANH) - 2024 Q2 - Quarterly Report

Unaudited Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets Total assets slightly increased to $142.2 million driven by higher cash, while liabilities rose marginally due to new warrants Condensed Consolidated Balance Sheets | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $34,196,461 | $29,091,098 | | Accounts receivable, net | $39,754,895 | $41,798,647 | | Total Current Assets | $117,971,350 | $115,670,579 | | Total Assets | $142,168,973 | $141,686,597 | | Liabilities & Equity | | | | Short-term bank loans | $0 | $2,264,812 | | Accounts payable | $6,513,874 | $2,309,283 | | Warrant liabilities | $2,208,668 | $0 | | Total Liabilities | $19,087,122 | $18,681,365 | | Total Stockholders' Equity | $123,081,851 | $123,005,232 | Unaudited Condensed Consolidated Statements of Operation and Comprehensive Loss Revenue grew 9.0% to $21.5 million, but net income fell 35.0% to $1.3 million due to higher expenses and warrant liability losses - Key factors impacting net income included a $1,005,593 gain from the disposal of a subsidiary and an $850,294 loss from the change in fair value of warrant liabilities in 2024, compared to a $290,267 subsidy income in 2023[6] Unaudited Condensed Consolidated Statements of Operation | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Revenues | $21,526,587 | $19,741,709 | | Gross Profit | $4,802,629 | $4,054,830 | | Income from operations | $1,712,488 | $1,893,848 | | Net income attributable to common shareholders | $1,306,778 | $2,011,244 | | Basic EPS | $0.23 | $1.06 | | Diluted EPS | $0.21 | $1.06 | Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity remained stable at $123.1 million as net income was offset by a negative foreign currency translation adjustment - Key activities affecting equity in H1 2024 included the issuance of common shares and pre-funded warrants raising approximately $284,000[8] - Conversion of a convertible note added $909,000 to capital[8] - Net income contributed $1.1 million[8] - A significant foreign currency translation adjustment reduced equity by $2.2 million[8] Unaudited Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive at $4.4 million due to working capital changes, leading to a $5.1 million net increase in cash - The significant positive swing in operating cash flow was primarily driven by a $4.6 million increase in accounts payable[9] Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,445,522 | $(901,876) | | Net cash used in investing activities | $(900,070) | $(1,397,446) | | Net cash provided by financing activities | $1,488,834 | $8,509,635 | | Net increase in cash | $5,100,208 | $5,760,061 | Notes to Unaudited Condensed Consolidated Financial Statements This section details accounting policies, divestitures, liabilities, related-party transactions, contingencies, and segment performance Note 1 - Organization and Nature of Business The Group operates in bamboo products, electric and non-electric vehicles, and mining exploration, primarily through subsidiaries in China - The Group's main business activities are the R&D, production, and distribution of bamboo products[10] - The Group also manufactures and sells electric and non-electric vehicles[10] - A third business line involves investment in mining exploration[10] Note 2 - Summary of Significant Accounting Policies The company follows U.S. GAAP, uses Level 3 inputs for fair value measures, and faces significant customer and supplier concentration risks - The company measures its convertible note and warrant liabilities at fair value on a recurring basis using significant unobservable inputs (Level 3), specifically the Monte Carlo Simulation Model[23][25] - The Group has significant customer concentration, with three major customers accounting for 68% of total sales in H1 2024[48] - The Group also has significant supplier concentration, with two major suppliers accounting for 50% of total purchases in H1 2024[50] Note 3 - Divestitures The Group sold its Tantech Charcoal subsidiary in March 2024, resulting in a gain of approximately $1.0 million - The Group disposed of its subsidiary, Tantech Charcoal, in March 2024, recognizing a gain of $1,005,593[57] Note 4 - Accounts Receivable, net Net accounts receivable decreased to $39.8 million, with the allowance for credit losses reduced due to a significant write-off Accounts Receivable, net | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Accounts receivable | $43,777,466 | $46,562,210 | | Allowance for credit losses | $(4,022,571) | $(4,763,563) | | Accounts receivable, net | $39,754,895 | $41,798,647 | Note 5 – Inventory, net Total inventory decreased from $1.2 million to $0.9 million, driven by reductions in work in process and finished goods Inventory, net | Category | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Raw materials | $491,021 | $539,916 | | Work in process | $442,981 | $663,789 | | Finished products | $0 | $31,871 | | Total Inventory | $934,002 | $1,235,576 | Note 6 – Advances to Suppliers, net Net advances to suppliers decreased significantly from $212,284 to $81,741 during the first half of 2024 Advances to Suppliers, net | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Advances to suppliers, net | $81,741 | $212,284 | Note 7 - Financing Receivable, net The factoring financing business maintained a stable receivable balance of $42.4 million but saw a decline in interest income - The financing receivables are secured by pledged accounts receivable and generally have a term of 12 months with an annual interest rate of 6.5%, which can be extended for another 12 months at 4.8%[62] Net Financing Interest Income | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net financing interest income | $860,149 | $1,206,998 | Note 8 - Leases Right-of-use assets and operating lease liabilities both decreased dramatically to below $40,000 in the first half of 2024 Lease Assets and Liabilities | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Right-of-use assets, net | $32,310 | $1,232,323 | | Total operating lease liabilities | $36,438 | $1,236,548 | Note 9 - Short-term Bank Loans The Group eliminated its $2.26 million short-term bank loan through the divestiture of a subsidiary - The company eliminated its $2.26 million short-term bank loan through the disposition of its subsidiary, Tantech Charcoal[66] Note 10 – Convertible note A convertible note was partially converted, its balance increased due to share price drops, and it was later exchanged post-period - The June 2023 Note was partially converted into 796,666 common shares in H1 2024[70] - A compensation of $610,227 was added to the note's balance due to a significant drop in the company's share price[71] - Subsequent to the reporting period, on September 5, 2024, the June 2023 Note was cancelled and exchanged for a new promissory note with a principal amount of $1,525,213[72] Note 11 - Related Party Balances and Transactions The Group holds unsecured, interest-free balances totaling $981,127 due to its Chairman and CEO for working capital purposes Due to Related Parties | Due to Related Party | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Mr. Zhengyu Wang and his affiliates | $833,555 | $756,965 | | Mr. Wangfeng Yan, and his affiliates | $147,572 | $146,502 | | Total | $981,127 | $903,467 | Note 12 - Commitments and Contingencies The Group has accrued a liability of approximately $2.0 million, including interest, related to a lawsuit from a former manager - The company has a legal contingency from a lawsuit, resulting in an accrued liability of approximately $2.0 million (RMB 14.55 million) including principal and interest[80] Note 13 - Stockholders' Equity A 2024 private placement led to a dramatic increase in outstanding warrants, which are classified as derivative liabilities - In April 2024, the company completed a private placement of 4.2 million units at $0.50 per unit, with each unit comprising a common share (or pre-funded warrant), two Series A warrants, and one Series B warrant[85] - The warrants issued in the April 2024 Private Placement are accounted for as derivative liabilities measured at fair value, totaling $2,208,668 as of June 30, 2024[89] - The number of outstanding warrants increased from 25,250 at year-end 2023 to 8,875,250 at June 30, 2024, primarily due to the April 2024 private placement[90] Note 14 - Non-controlling Interests The non-controlling interest balance of ($2.91 million) represents a 30% outside equity stake in the Shangchi Automobile subsidiary - The non-controlling interest represents a 30% equity stake in Shangchi Automobile and its subsidiary, held by an outside party[17][93] Note 15 - Segment Information The Consumer Products segment drives the business with $21.5 million in revenue, while the EV segment remains minimal and unprofitable - Geographically, $20.9 million of the $21.5 million in total revenue for H1 2024 came from China[94] Segment Performance (H1 2024) | Segment (H1 2024) | Revenue | Segment Profit (Loss) | | :--- | :--- | :--- | | Consumer Products | $21,484,736 | $1,782,209 | | Electric Vehicles (EV) | $41,851 | $(674,169) | | Total | $21,526,587 | $1,108,040 | Note 16 - Subsequent Events Post-period, the company raised $2.0 million in gross proceeds through a new unsecured promissory note - On August 1, 2024, the Company issued a new unsecured promissory note for $2.0 million in gross proceeds[99]