Tantech Holdings(TANH) - 2022 Q2 - Quarterly Report

Consolidated Financial Statements Condensed Consolidated Balance Sheets Total assets grew to $136.2 million, driven by new factoring receivables which offset a significant decrease in cash Key Balance Sheet Items | Balance Sheet Items | June 30, 2022 (Unaudited) ($) | December 31, 2021 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 10,802,613 | 43,144,049 | | Accounts receivable, net | 47,011,566 | 44,962,926 | | Factoring receivable | 43,728,005 | — | | Total Current Assets | 107,673,710 | 105,807,889 | | Total Assets | 136,227,771 | 134,527,058 | | Liabilities & Equity | | | | Short-term bank loans | 4,192,344 | 4,719,552 | | Total Liabilities | 17,646,334 | 21,990,347 | | Total Stockholders' Equity | 118,581,437 | 112,536,711 | Unaudited Condensed Consolidated Statements of Income (Loss) and Comprehensive Loss The company achieved a significant turnaround with a net income of $1.87 million in H1 2022, driven by revenue growth and reduced operating expenses Key Income Statement Items | Income Statement Items | Six Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2021 ($) | | :--- | :--- | :--- | | Revenues | 27,025,728 | 20,633,188 | | Gross Profit | 5,134,216 | 3,972,801 | | Total operating expenses | 1,910,183 | 9,713,193 | | Income (loss) from operations | 3,224,033 | (5,740,392) | | Net income (loss) | 1,872,244 | (6,752,212) | | Basic Earnings (loss) per share | 2.72 | (42.33) | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $118.6 million, primarily due to net proceeds from stock issuance and net income Changes in Stockholders' Equity | Equity Changes (Six Months Ended June 30, 2022) | Amount ($) | | :--- | :--- | | Balance at December 31, 2021 | 112,536,711 | | Proceeds from issuance of common stock | 10,120,400 | | Foreign currency translation adjustment | (5,947,918) | | Net income | 1,872,244 | | Balance at June 30, 2022 | 118,581,437 | Unaudited Condensed Consolidated Statements of Cash Flows A significant net cash outflow from operations of $47.5 million was driven by an increase in factoring receivables Key Cash Flow Items | Cash Flow Items (Six Months Ended) | June 30, 2022 ($) | June 30, 2021 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (47,547,037) | (1,656,029) | | Net cash used in investing activities | (21,879) | (5,086) | | Net cash provided by financing activities | 15,958,904 | 4,714,214 | | Net (decrease) increase in cash | (32,764,268) | 3,372,497 | | Cash, end of period | 10,802,613 | 40,711,801 | - The primary driver for the large cash outflow from operations was a $45.2 million increase in factoring receivables, a new item on the cash flow statement[17] Notes to Unaudited Condensed Consolidated Financial Statements Note 1 – Organization and Nature of Business The company operates in China across bamboo products, electric vehicles, and mining exploration investment segments - The company's principal business activities include bamboo product development, production, and distribution; manufacturing and selling electric and non-electric vehicles; and investment in mining exploration[20] - The company dismantled its Variable Interest Entity (VIE) structure on August 3, 2021[20] Note 2 – Summary of Significant Accounting Policies The company recognizes revenue under ASC 606 from multiple sources and acknowledges risks related to its PRC operations - Revenue is primarily derived from four sources: sales of products, commission income, government manufacturing rebates, and factoring income[50][51][52] - The company's operations are located in the PRC, which presents risks related to political, economic, and legal environments, as well as currency controls on the RMB[65][66] - Management believes the impact of the COVID-19 outbreak on the business is temporary and limited, noting that revenues have started growing again in fiscal 2021 and 2022[70] Note 3 – Liquidity The company's liquidity is supported by revenue growth, equity financing, and plans for future funding through debt and shareholder support - The company had approximately $10.8 million in cash on hand as of June 30, 2022, following a successful equity financing that raised net proceeds of $10.1 million during the period[79] - Future funding plans rely on renewing bank loans, raising additional equity, and obtaining financial support from its principal shareholder and affiliated entities as needed[80] Note 7 – Manufacturing Rebate Receivable The company has fully written off its manufacturing rebate receivable due to a new government policy making collection remote - Due to a new government policy requiring a minimum of 1,000 commercial vehicles for rebate application, the company determined that the successful claim of its existing manufacturing rebate was a remote possibility[91] - A 100% allowance was recorded against the manufacturing rebate receivable as of December 31, 2021[91] Note 11 – Short-term Bank Loans Short-term bank loans decreased to $4.2 million and are collateralized by company assets and guaranteed by related parties Bank Loan Balances | Date | Total Bank Loans Payable ($) | | :--- | :--- | | June 30, 2022 | 4,192,344 | | December 31, 2021 | 4,719,552 | - The loans are collateralized by building and land use rights and guaranteed by related parties, including Chairman Zhengyu Wang, his wife, and their controlled company, Forasen Group Co, Ltd[105][107] Note 12 – Related Party Balances and Transactions The company engages in significant transactions with related parties, including unsecured loans and leasing arrangements Due to Related Parties | Due to Related Parties | June 30, 2022 ($) | | :--- | :--- | | Forasen Group (Chairman's affiliate) | 794,232 | | Mr. Wangfeng Yan (CEO) & affiliates | 177,687 | | Total | 971,919 | - The company leases production facilities to Zhejiang Nongmi Food Co, Ltd and Zhejiang Nongmi Biotechnology Co, Ltd, both of which are controlled by director Ms Yefang Zhang, generating rental income[117][120] Note 13 – Commitments and Contingencies A lawsuit resulted in a final judgment of approximately $1.4 million against the company, for which funds have been accrued and frozen - A lawsuit filed by Mr Hengwei Chen resulted in a final judgment against the company for approximately $1.4 million (RMB 8.95 million)[123] - The company has accrued for the disputed amount and interest, and the court has frozen $1.3 million in the company's bank accounts to enforce the judgment[123] Note 14 – Stockholders' Equity The company executed two reverse stock splits to maintain its Nasdaq listing and raised $10.1 million through a stock offering - The company conducted two reverse stock splits in 2022 (one-for-ten and one-for-twenty-four) to regain compliance with NASDAQ's minimum bid price rule[125][126] - In March 2022, the company raised total net proceeds of approximately $10.1 million from an offering of common shares and the exercise of an over-allotment option[131] Note 16 – Long Term Investments The company holds two significant long-term investments in mining companies accounted for using the cost method - The company holds an 18% equity interest in Libo Haokun, a marble quarry company, and an indirect 14.76% interest in Fuquan Chengwang, a basalt mining company[140][143] - These investments are accounted for using the cost method, and no impairment was recorded for the six months ended June 30, 2022[144] Note 17 – Segment Information The consumer products segment drove performance in H1 2022, while all company revenues were generated from customers in China Segment Performance | Segment Performance (Six Months Ended June 30, 2022) | Revenue ($) | Segment Profit / (Loss) ($) | | :--- | :--- | :--- | | Consumer Products | 26,290,353 | 2,754,183 | | Electric Vehicles (EV) | 679,064 | (916,312) | | Commercial Factoring | 56,311 | 34,373 | - All of the company's revenues for the periods presented were generated from customers located in the PRC[150][151] Note 18 – Major Customers and Suppliers The company exhibits significant concentration risk with a heavy reliance on a small number of customers and suppliers - Customer concentration is high, with four customers representing 68% of total sales for the six months ended June 30, 2022[152] - Supplier concentration is also high, with four suppliers accounting for 71% of total purchases for the six months ended June 30, 2022[153] Note 19 – Subsequent Events Post-period events include a reverse stock split for NASDAQ compliance, international expansion, and securing a new bank loan - A one-for-twenty-four reverse stock split was approved and became effective on November 9, 2022, to regain NASDAQ compliance[155] - NASDAQ granted the company an extension until April 24, 2023, to meet the $1.00 per share minimum bid price requirement[156] - On July 12, 2022, the company formed a wholly-owned subsidiary in Canada, EPakia Canada Inc, to develop a biodegradable packaging trading business[157]