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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Tantech Holdings Ltd | NASDAQ:TANH | NASDAQ | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.0011 | -0.68% | 0.1615 | 0.1615 | 0.1655 | 0.1664 | 0.1565 | 0.1595 | 1,664,504 | 00:58:41 |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 20-F/A
(Amendment No. 2)
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2021 |
OR
☐ | TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report __________
Commission file number 001-36885
TANTECH HOLDINGS LTD
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s Name into English)
British Virgin Islands
(Jurisdiction of incorporation or organization)
c/o Tantech Holdings (Lishui) Co., Ltd.
No. 10 Cen Shan Road, Shuige Industrial Zone, Lishui City
Zhejiang Province 323000, People’s
Republic of China
(Address of principal executive offices)
Mr. Weilin Zhang
c/o Tantech Holdings (Lishui) Co., Ltd.
No. 10 Cen Shan Road, Shuige Industrial Zone, Lishui City
Zhejiang Province 323000
People’s Republic of China
Tel: +86-578-226-2305
Fax: +86-578-226-2360
Email: tantech@tantech.cn
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class |
| Trading Symbol |
| Name of each exchange on which |
Common shares | TANH | The Nasdaq Capital Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None |
(Title of Class) |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Common Shares |
(Title of Class) |
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report was:
6,399,460 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☒ |
| International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ |
| Other ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Explanatory Note
This Amendment No. 2 on Form 20-F/A (the “Amendment”) amends the annual report on Form 20-F of Tantech Holdings Ltd (the “Company”) for the fiscal year ended December 31, 2021, originally filed with the U.S. Securities and Exchange Commission (“SEC”) on July 18, 2022 (the “Original Form 20-F”), as amended by Amendment No. 1 on Form 20-F/A, as filed with the SEC on December 23, 2022 (“Amendment No. 1” and the Original Form 20-F as amended by Amendment No. 1, the “Form 20-F”). This Amendment is being filed to amend Item 17 of Part III in the Form 20-F to include the full set of financial statements and a revised Report of Independent Registered Public Accounting Firm relating thereto. Item 19 of the Form 20-F is amended by the filing of new exhibits regarding CEO and CFO certifications and the auditor’s consent letter in this Amendment.
Other than as set forth herein, this Amendment does not, and does not purport to, amend, update or restate any other information or disclosure included in the Original Form 20-F or Amendment No. 1, or reflect any events that have occurred after the filing of the Original Form 20-F.
PART III
ITEM 17.FINANCIAL STATEMENTS.
See Item 18.
ITEM 18.FINANCIAL STATEMENTS.
The consolidated financial statements of Tantech Holdings Ltd are included at the end of this annual report, beginning with page F-1.
2
ITEM 19.EXHIBITS.
1.1 (1) |
| |
1.2.1 (1) | ||
1.2.2 (1) | First Amended and Restated Memorandum of Association of Tantech Holdings Ltd | |
2.1 (1) | ||
2.2 (6) | ||
2.3 (3) | Form of Registered Investor Warrant issued on November 24, 2020 | |
2.4 (3) | Form of Unregistered Investor Warrant issued November 24, 2020 | |
2.5 (3) | ||
4.1 (4) | ||
4.2 (4) | ||
4.3 (4) | ||
4.4 (10) | ||
4.5 (10) | ||
4.6 (10) | ||
4.7 (3) | ||
4.8 (5) | ||
4.9 (3) | ||
4.10 (3) | ||
4.11(7) | ||
4.12(8) | ||
4.13(9) | ||
4.14 (10) | English Translation of Termination Agreement re VIE Structure | |
8.1 (10) | ||
11.1 (2) |
3
12.1* | ||
12.2* | ||
13.1* | ||
13.2* | ||
15.1 (1) | ||
23.1* | ||
99.1 (10) | Press release dated July 18, 2022 titled “Tantech Announces Full Year 2021 Financial Results” | |
|
| |
104* | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
101.INS | XBRL Instance Document. | |
|
| |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
|
| |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
|
| |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
|
| |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
| (1) | Previously filed with the registration statement on Form F-1, File no. 333-198788, filed on September 16, 2014, as amended and incorporated herein by reference. |
| (2) | Previously filed on Form 6-K, dated May 2, 2016 and incorporated by reference. |
| (3) | Previously filed on Form 6-K, dated November 20, 2020 and incorporated by reference. |
| (4) | Previously filed with our annual report on Form 20-F, File no. 001-36885, filed on June 30, 2020 and incorporated herein by reference. |
| (5) | Previously filed on Form 6-K/A, dated December 8, 2020 and incorporated by reference. |
| (6) | Previously filed on Form 6-K, dated September 27, 2017 and incorporated by reference. |
| (7) | Previously filed with our annual report on Form 20-F, File no. 001-36885, filed on April 27, 2021 and incorporated herein by reference. |
| (8) | Previously filed on Form 6-K, dated May 27, 2021 and incorporated by reference. |
| (9) | Previously filed on Form 6-K, dated December 6, 2021 and incorporated by reference. |
| (10) | Previously filed on Form 20-F on July 18, 2022 and incorporated by reference. |
* | Filed herewith. |
4
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Tantech Holdings Ltd | ||
By: | /s/ Wangfeng Yan | |
Name: | Wangfeng Yan | |
Title: | Chief Executive Officer | |
Date: January 17, 2023 | ||
5
TANTECH HOLDINGS LTD AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
| Page | |
Reports of independent Registered Public Accounting Firms (PCAOB ID: 6781) | F-2 | |
Consolidated Financial Statements |
| |
Consolidated Balance Sheets as of December 31, 2021 and 2020 | F-4 | |
F-5 | ||
Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2021, 2020 and 2019 | F-6 | |
Consolidated Statements of Cash Flows For the Years Ended December 31, 2021, 2020 and 2019 | F-7 | |
F-8 – F-36 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of Tantech Holdings, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tantech Holdings, Ltd. and subsidiaries (collectively, the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the years ended December 31, 2021, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for years ended December 31, 2021, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or are required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.
Valuation of Electric Vehicle Manufacturing License as of December 31, 2020
The Company has an electric vehicle manufacturing license which has an indefinite life. As of December 31, 2019, the aggregate amount of the indefinite-lived intangible assets was approximately $12.0 million. In 2020, the Company recorded impairment charges relating to the company’s indefinite-lived intangible assets of $12.0 million. As discussed in Note 11 to the consolidated financial statements, the Company tests its indefinite-lived intangible assets for impairment annually and whenever events or circumstances indicate that it is more likely than not that the impairment may have occurred.
F-2
Auditing the Company’s impairment test on Indefinite-lived Intangible Assets was complex due to the significant judgment required in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions that require judgment, including the amount and timing of future cash flows (e.g. revenue growth rates) and the weighted average cost of capital (“discount rate”), which are affected by factors such as general market conditions and recent operating performance.
To test the estimated fair value of the Company’s reporting unit, our audit procedures included, among others, evaluating the valuation methodology and the reasonableness of management’s revenue growth rate and gross margin forecasts. We compared the assumptions in the valuation process described above, used by management, to current industry and economic trends, historical Company results, changes to the Company’s business model, regulatory changes, customer base or revenue mix and other relevant factors. We evaluated the Company’s internal and external communications to identify any corroboratory or contrary evidence. We assessed the historical accuracy of management’s estimates and evaluated management’s sensitivity assessment of the subjective assumptions to evaluate the changes in the analysis that would result from changes in these assumptions.
/s/ YCM CPA, Inc.
We have served as the Company’s auditor since 2022.
PCAOB ID 6781
Irvine, California
December 23, 2022, except for Note 3, as to which the date is January 17, 2023
F-3
Tantech Holdings Ltd and Subsidiaries
Consolidated Balance Sheets
| December 31, 2021 |
| December 31, 2020 | |||
Assets | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 43,144,049 | $ | 37,119,195 | ||
Restricted cash |
| 422,832 |
| 220,109 | ||
Accounts receivable, net |
| 44,962,926 |
| 34,410,597 | ||
Inventories, net |
| 1,069,698 |
| 671,251 | ||
Due a from related party | 10,354,051 | — | ||||
Advances to suppliers, net |
| 3,420,628 |
| 6,854,461 | ||
Advances to suppliers – related party |
| — |
| 1,533,000 | ||
Prepaid taxes |
| 1,609,466 |
| 1,046,667 | ||
Prepaid expenses and other receivables, net |
| 824,239 |
| 45,467 | ||
Total Current Assets |
| 105,807,889 |
| 81,900,747 | ||
Property, plant and equipment, net |
| 2,103,947 |
| 2,477,912 | ||
Other Assets |
|
|
| |||
Manufacturing rebate receivable |
| — |
| 5,755,237 | ||
Intangible assets, net |
| 205,971 |
| 664,033 | ||
Right of use assets | 313,172 | — | ||||
Long-term Investment |
| 26,096,079 |
| 25,497,316 | ||
Total Other Assets |
| 26,615,222 |
| 31,916,586 | ||
Total Assets (Note 3 at VIE) | $ | 134,527,058 | $ | 116,295,245 | ||
Liabilities and Stockholders’ Equity |
|
|
| |||
Current Liabilities |
|
|
| |||
Short-term bank loans | $ | 4,719,552 | $ | 5,564,790 | ||
Bank acceptance notes payable |
| — |
| 1,753,109 | ||
Accounts payable |
| 1,563,787 |
| 1,543,994 | ||
Due to related parties |
| 1,847,421 |
| 2,019,087 | ||
Customer deposits |
| 3,580,622 |
| 3,183,088 | ||
Taxes payable |
| 823,701 |
| 571,354 | ||
Loan payable to third parties |
| 7,002,385 |
| 306,600 | ||
Lease liabilities-current | 115,330 | — | ||||
Accrued liabilities and other payables |
| 2,114,258 |
| 1,861,835 | ||
Total Current Liabilities |
| 21,767,056 |
| 16,803,857 | ||
Lease liabilities non-current | 223,291 | — | ||||
Total Liabilities |
| 21,990,347 |
| 16,803,857 | ||
Stockholders’ Equity |
|
|
|
| ||
Common stock, $0.01 par value, 60,000,000 shares authorized, 6,399,460 and 3,589,409 shares and as of December 31, 2021 and 2020, respectively* |
| 63,995 |
| 35,894 | ||
Additional paid-in capital |
| 69,566,786 |
| 48,392,181 | ||
Statutory reserves |
| 6,874,614 |
| 6,437,506 | ||
Retained earnings |
| 36,684,794 |
| 45,480,031 | ||
Accumulated other comprehensive income (loss) |
| 1,071,149 |
| (1,493,070) | ||
Total Stockholders’ Equity attributable to the Company |
| 114,261,338 |
| 98,852,542 | ||
Noncontrolling interest |
| (1,724,627) |
| 638,846 | ||
Total Stockholders’ Equity |
| 112,536,711 |
| 99,491,388 | ||
Total Liabilities and Stockholders’ Equity | $ | 134,527,058 | $ | 116,295,245 | ||
*Retroactively restated for -for-ten reverse split with effective date of February 25, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Tantech Holdings Ltd and Subsidiaries
Consolidated Statements of Comprehensive Loss
| For the Years Ended December 31, | ||||||||
| 2021 |
| 2020 |
| 2019 | ||||
Revenues | $ | 55,263,673 | $ | 42,283,670 | $ | 49,230,570 | |||
Cost of revenues |
| 44,832,347 |
| 37,807,297 |
| 43,253,070 | |||
Gross Profit |
| 10,431,326 |
| 4,476,373 |
| 5,977,500 | |||
Operating expenses | |||||||||
Selling expenses |
| 221,364 |
| 977,201 |
| 319,946 | |||
General and administrative expenses |
| 8,831,407 |
| 955,210 |
| 4,655,382 | |||
Share based compensation | 1,840,000 | — | — | ||||||
Impairment of goodwill and intangible asset |
| — |
| 11,998,606 |
| 9,584,000 | |||
Research and development expenses |
| 8,053,400 |
| 890,316 |
| 327,260 | |||
Total operating expenses |
| 18,946,171 |
| 14,821,333 |
| 14,886,588 | |||
Loss from operations |
| (8,514,845) |
| (10,344,960) |
| (8,909,088) | |||
Other income (expenses) |
|
|
|
|
| ||||
Interest income |
| 117,735 |
| 50,732 |
| 53,060 | |||
Interest expense |
| (740,400) |
| (300,125) |
| (443,262) | |||
Rental income from related party | 117,958 | — | — | ||||||
Gain from sale property to a related party | 545,874 | — | — | ||||||
Other income (loss), net |
| 210,176 |
| (39,530) |
| 3,669 | |||
Total other income (expenses) |
| 251,343 |
| (288,923) |
| (386,533) | |||
Loss before income tax expense (credit) |
| (8,263,502) |
| (10,633,883) |
| (9,295,621) | |||
Income tax expense (credit) |
| 2,429,480 |
| (611,655) |
| 363,662 | |||
Net loss from continuing operations |
| (10,692,982) |
| (10,022,228) |
| (9,659,283) | |||
Discontinued operation: |
|
|
|
|
| ||||
Income from discontinued operations, net of tax |
| — |
| — |
| 270,479 | |||
Loss from disposal of discontinued operations |
| — |
| — |
| (569,891) | |||
Net loss from discontinued operations |
| — |
| — |
| (299,412) | |||
Net loss |
| (10,692,982) |
| (10,022,228) |
| (9,958,695) | |||
Less: net loss attributable to noncontrolling interest from continuing operations |
| (2,334,853) |
| (3,501,808) |
| (3,601,728) | |||
Net loss attributable to common stockholders of Tantech Holdings Ltd | $ | (8,358,129) | $ | (6,520,420) | $ | (6,356,967) | |||
Net loss |
| (10,692,982) |
| (10,022,228) |
| (9,958,695) | |||
Other comprehensive income (loss): |
|
|
|
|
| ||||
Foreign currency translation adjustment |
| 2,535,599 |
| 5,892,311 |
| (5,494,731) | |||
Comprehensive loss |
| (8,157,383) |
| (4,129,917) |
| (15,453,426) | |||
Less: Comprehensive loss attributable to noncontrolling interest |
| (2,363,473) |
| (3,707,370) |
| (3,571,880) | |||
Comprehensive loss attributable to common stockholders of Tantech Holdings Ltd | $ | (5,793,910) | $ | (422,547) | $ | (11,881,546) | |||
Loss per share - Basic and Diluted* |
|
|
|
|
| ||||
Continuing operations | $ | (2.01) | $ | (2.21) | $ | (2.10) | |||
Discontinued operations | $ | — | $ | — | $ | (0.10) | |||
Total | (2.01) | (2.21) | (2.20) | ||||||
Weighted Average Shares Outstanding - Basic and Diluted Continuing operations and discontinued operations* |
| 4,148,737 |
| 2,956,624 |
| 2,885,324 | |||
*Retroactively restated for -for-ten reverse split with effective date of February 25, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Tantech Holdings Ltd and Subsidiaries
Consolidated Statements of Stockholders’ Equity
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
| ||||||||||
Additional | Other | Non | Total | ||||||||||||||||||||
Common Stock | Paid in | Comprehensive | Statutory | Retained | Controlling | Stockholders’ | |||||||||||||||||
Shares* | Amount | Capital | Income (loss) | Reserves | Earnings | Interest | Equity | ||||||||||||||||
Balance at December 31, 2018 |
| 2,885,324 |
| $ | 28,853 |
| $ | 39,310,178 |
| $ | (2,066,364) |
| $ | 6,461,788 |
| $ | 58,333,136 |
| $ | 7,918,096 |
| $ | 109,985,687 |
Foreign currency translation adjustment |
| — |
| — |
| — |
| (5,524,579) |
| — |
| — |
| 29,848 |
| (5,494,731) | |||||||
Net loss |
| — |
| — |
| — |
| — |
| (82,512) |
|
| (3,601,728) |
| (9,958,695) | ||||||||
Balance at December 31, 2019 |
| 2,885,324 |
| $ | 28,853 |
| $ | 39,310,178 |
| $ | (7,590,943) |
| $ | 6,379,276 |
| $ | 52,058,681 |
| $ | 4,346,216 |
| $ | 94,532,261 |
Issuance of common stock for private placement |
| 606,061 |
| 6,061 |
| 9,048,939 |
| — |
| — |
| — |
| — |
| 9,055,000 | |||||||
Exercise of 2017 warrants |
| 94,465 |
| 945 |
| (713) |
| — |
| — |
| — |
| — |
| 232 | |||||||
Issuance of common stock for service |
| 3,559 |
| 35 |
| 33,777 |
| — |
| — |
| — |
| — |
| 33,812 | |||||||
Foreign currency translation adjustment |
| — |
| — |
| — |
| 6,097,873 |
| — |
| — |
| (205,562) |
| 5,892,311 | |||||||
Appropriation of retained earnings to statutory reserve fund |
| — |
| — |
| — |
| — |
| 58,230 |
| (58,230) |
| — |
| — | |||||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| (6,520,420) |
| (3,501,808) |
| (10,022,228) | |||||||
Balance at December 31, 2020 |
| 3,589,409 | $ | 35,894 | $ | 48,392,181 | $ | (1,493,070) | $ | 6,437,506 | $ | 45,480,031 | $ | 638,846 | $ | 99,491,388 | |||||||
Issuance of common stock for private placement | 2,650,051 | 26,501 | 19,336,205 | — | — | — | — | 19,362,706 | |||||||||||||||
Issuance of common stock for compensation | 160,000 | 1,600 | 1,838,400 | — | — | — | — | 1,840,000 | |||||||||||||||
Appropriation of retained earnings to statutory reserve fund | — | — | — | — | 437,108 | (437,108) | — | — | |||||||||||||||
Foreign currency translation adjustment | 2,564,219 | — | (28,620) | 2,535,599 | |||||||||||||||||||
Net loss | — | — | — | — | (8,358,129) | (2,334,853) | (10,692,982) | ||||||||||||||||
Balance at December 31, 2021 | 6,399,460 | $ | 63,995 | $ | 69,566,786 | $ | 1,071,149 | $ | 6,874,614 | $ | 36,684,794 | $ | (1,724,627) | $ | 112,536,711 | ||||||||
*Retroactively restated for -for-ten reverse split with effective date of February 25, 2022.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Tantech Holdings Ltd and Subsidiaries
Consolidated Statements of Cash Flows
| For the Years Ended December 31, | ||||||||
2021 | 2020 | 2019 | |||||||
Cash flows from operating activities | |||||||||
Net loss | $ | (10,692,982) | $ | (10,022,228) | $ | (9,958,695) | |||
Net loss from discontinued operations |
| — |
| — |
| 299,412 | |||
Net loss from continuing operations |
| (10,692,982) |
| (10,022,228) |
| (9,659,283) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||
Allowance (Reversal of) for doubtful accounts - accounts receivable |
| (52,789) |
| (845,416) |
| 1,297,752 | |||
(Reversal of) allowance for doubtful accounts - advance to suppliers |
| (142,799) |
| (378,233) |
| 164,220 | |||
Write off manufacturing rebate receivable | 5,819,059 | — | — | ||||||
(Reversal of) Allowance for doubtful accounts – other receivables |
| — |
| (84,573) |
| 705,400 | |||
Share based compensation | 1,840,000 | — | — | ||||||
Inventory reserve |
| 359,501 |
| 92,064 |
| 1,030,236 | |||
Impairment of goodwill and intangible asset |
| — |
| 11,998,606 |
| 9,584,000 | |||
Decrease in deferred tax liability |
| — |
| (1,799,791) |
| (165,500) | |||
Depreciation expense |
| 444,462 |
| 436,427 |
| 462,639 | |||
Amortization of intangible asset |
| 472,140 |
| 441,489 |
| 441,489 | |||
Amortization of right of use assets | 44,964 | — | — | ||||||
Amortization of prepaid consulting expense |
| — |
| — |
| 140,738 | |||
(Gain) Loss from disposal of property, plant and equipment |
| (545,844) |
| 68,614 |
| (8,047) | |||
Issuance of common stock for service |
| — |
| 33,812 |
| — | |||
Contingent liability | 535,389 | — | — | ||||||
Changes in operating assets and liabilities: |
|
|
|
|
| ||||
Accounts receivable - non-related party |
| (9,573,463) |
| 8,024,036 |
| (9,879,682) | |||
Accounts receivable - related party |
| — |
| — |
| — | |||
Advances to suppliers |
| 3,694,066 |
| 7,093,022 |
| 415,727 | |||
Advances to suppliers - related party |
| 1,550,000 |
| (1,448,000) |
| — | |||
Inventory |
| (737,552) |
| (125,492) |
| 242,142 | |||
Prepaid expenses and other receivables |
| (768,288) |
| 133,768 |
| 9,127 | |||
Manufacturing rebate receivable |
|
| 2,374,720 |
| 1,563,840 | ||||
Accounts payable |
| (16,266) |
| (206,261) |
| (751,363) | |||
Accrued liabilities and other payables |
| (323,441) |
| 313,552 |
| (78,923) | |||
Customer deposits |
| 318,875 |
| (3,792,409) |
| 6,184,836 | |||
Collection of receivables from discontinued operations |
| — |
| — |
| 8,962,187 | |||
Lease liabilities | (19,824) | — | — | ||||||
Taxes payable |
| (295,666) |
| 1,863,853 |
| (597,392) | |||
Net cash (used in) provided by continuing operations |
| (8,090,458) |
| 14,171,560 |
| 10,064,143 | |||
Net cash provided by discontinued operations |
| — |
| — |
| 4,632,769 | |||
Net cash (used in) provided by operating activities |
| (8,090,458) |
| 14,171,560 |
| 14,696,912 | |||
Cash flows from investing activities |
|
|
|
|
| ||||
Acquisition of property, plant and equipment |
| (220,308) |
| (144,806) |
| (92,369) | |||
Proceeds from disposal of property, plant and equipment |
| 748,612 |
| 21,842 |
| 16,580 | |||
Additions to intangible assets |
| (4,220) |
| — |
| — | |||
Payment for investment |
| — |
| — |
| (6,707,570) | |||
Proceeds from disposition of subsidiaries |
| — |
| — |
| 854,567 | |||
Net cash provided by (used in) continuing operations |
| 524,084 |
| (122,964) |
| (5,928,792) | |||
Net cash used in discontinued operations |
| — |
| — |
| (1,522) | |||
Net cash provided by (used in) investing activities |
| 524,084 |
| (122,964) |
| (5,930,314) | |||
Cash flows from financing activities |
|
|
|
|
| ||||
Proceeds from (repayment of) loans from third parties |
| 6,917,589 |
| — |
| (2,823,890) | |||
Repayment of loans from third parties | (310,000) | — | — | ||||||
Bank acceptance notes payable, net of repayment |
| (1,772,550) |
| 1,448,667 |
| (1,823,003) | |||
Proceeds from bank loans |
| 7,774,800 |
| 9,568,384 |
| 6,918,544 | |||
Repayment of bank loans |
| (8,738,900) |
| (11,230,688) |
| (7,352,944) | |||
Proceeds from (repayment of) loans from related parties, net |
| (10,428,196) |
| 98,474 |
| (378,833) | |||
Proceeds from issuance of common stock and warrants |
| 19,362,706 |
| 9,055,232 |
| — | |||
Net cash provided by (used in) continuing operations |
| 12,805,449 |
| 8,940,069 |
| (5,460,126) | |||
Net cash provided by discontinued operations |
| — |
| — |
| — | |||
Net cash provided by (used in) financing activities |
| 12,805,449 |
| 8,940,069 |
| (5,460,126) | |||
Effect of exchange rate changes on cash, restricted cash and cash equivalents |
| 988,502 |
| 1,704,662 |
| (530,288) | |||
Net increase in cash, restricted cash and cash equivalents |
| 6,227,577 |
| 24,693,327 |
| 2,776,184 | |||
Cash, restricted cash and cash equivalents, beginning of year |
| 37,339,304 |
| 12,645,977 |
| 9,869,793 | |||
Cash, restricted cash and cash equivalents, end of year | $ | 43,566,881 | $ | 37,339,304 | $ | 12,645,977 | |||
Supplemental disclosure information: |
|
|
|
|
| ||||
Income taxes paid | $ | 2,278,134 | $ | 436,566 | $ | 1,105,876 | |||
Interest paid | $ | 265,248 | $ | 308,690 | $ | 439,869 | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
TANTECH HOLDINGS LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business
Tantech Holdings Ltd (“Tantech” or “Tantech BVI”) is a holding company established under the laws of the British Virgin Islands on November 9, 2010. Tantech engages in the research and development, production and distribution of various products made from bamboo, manufacture and selling electric vehicles and non-electric vehicles, as well as investment in mining exploration. On August 3, 2021, Tantech completed dismantling its VIE structure (see Note 3). As of December 31, 2021, details of the subsidiaries of the Company and their principal business activities are set out below:
F-8
Note 2 – Summary of Significant Accounting Policies
Principal of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements include the financial statements of Tantech BVI and its subsidiaries (collectively, the “Company”). All significant inter-company balances and transactions are eliminated upon consolidation.
Non-controlling interest
Non-controlling interest represents 30% of the equity interest in Shangchi Automobile and its subsidiary Shenzhen Yimao owned by Zhangjiagang Jinke Chuangtou Co., Ltd., which is not under the Company’s control.
Use of Estimates
In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting year. Significant items subject to such estimates and assumptions include the fair value estimates used in the useful lives of property and equipment and intangible assets, allowances pertaining to the allowance for doubtful accounts of accounts receivable, advance to suppliers and other receivables, the valuation of inventories, the impairment of long-lived assets, and the realizability of deferred tax assets.
Fair Value of Financial Instruments
The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements”, defines fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.
The three levels are defined as follows:
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - inputs to the valuation methodology are unobservable.
Unless otherwise disclosed, the fair value of the Company’s financial instruments including cash, restricted cash, accounts receivable, advances to suppliers, other receivables, accounts payable, customer deposits, accrued expenses, short term bank loans and bank acceptance notes payable approximates their recorded values due to their short-term maturities.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. All cash balances are in bank accounts in PRC and are not insured by the Federal Deposit Insurance Corporation or other programs.
F-9
Note 2 – Summary of Significant Accounting Policies (continued)
Restricted Cash
For the year ended December 31, 2020, restricted cash represents the cash of $220,109 required deposits as a part of collateral for bank acceptance notes payable and letters of credit. The Company is required to maintain 0% to 100% of the balance of the bank acceptance notes payable in restricted cash to ensure future credit availability. The Company earns interest at a variable rate per month on this restricted cash.
For the year ended December 31, 2021, the Company’s restricted cash represents the cash of $422,832 remains frozen in the bank accounts of one of the Company’s subsidiaries as the result of the ongoing lawsuit filed by Mr. Hengwei Chen to against the Company (see Note 15).
Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, trade accounts receivable and advances to suppliers. All of the Company’s cash is maintained with banks within the People’s Republic of China of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas. The Company also makes cash advances to certain suppliers to ensure the stable supply of key raw materials. The Company performs ongoing credit evaluations of its customers and key suppliers to help further reduce credit risk.
Accounts receivable
Accounts receivable are presented at invoiced amount net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful.
Inventory
The Company values its inventories at the lower of cost, determined on a weighted average basis, or net realizable value. The Company reviews its inventories periodically to determine if any markdown is necessary for potential obsolescence or if a write-down is necessary if the carrying value exceeds net realizable value.
Advances to suppliers
In order to ensure a steady supply of raw materials, the Company is required from time to time to make cash advances when placing its purchase orders. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to refund an advance or provide supplies to the Company.
Property and Equipment and Construction in Progress
Property and equipment are stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.
F-10
Note 2 – Summary of Significant Accounting Policies (continued)
Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. The estimated useful lives for significant property and equipment are as follows:
Buildings |
| 20 years |
Machinery and equipment | 5 - 10 years | |
Transportation equipment |
| 4 - 5 years |
Office equipment |
| 4 - 5 years |
Electronic equipment |
| 3 - 5 years |
Repairs and maintenance costs are normally charged to earnings in the year in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalized as an additional cost of the asset.
Construction in progress includes direct costs of construction or acquisition of equipment, interest expense associated with the loans used for the construction and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for its intended use.
Intangible assets
Intangible assets are acquired individually or as part of a group of assets, and are initially recorded at cost. The cost of a group of assets acquired in a transaction is allocated to the individual assets based on their relative fair values. Intangible assets are carried at cost less accumulated amortization and any recorded impairment. Intangible assets with finite useful lives are amortized using a straight-line method over the period of estimated useful life. The estimated useful lives of the Company’s intangible assets are as follows:
| Estimated Useful Life | |
Licenses and permits | Indefinite | |
Software |
| 5 - 10 years |
Land use right |
| 50 years |
Patents |
| 10 years |
The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired.
Long term investments
The Company accounts for investment in equity investees over which it has significant influence but does not own a majority of the equity interest or lack of control using the equity method. For investment in equity investees over which the Company does not have significant influence or the underlying shares the Company invested in are not considered in-substance common stock and have no readily determinable fair value, the cost method accounting is applied.
The Company records the equity method investments at historical cost and subsequently adjusts the carrying amount each period for share of the earnings or losses of the investee and other adjustments required by the equity method of accounting. Dividends received from the equity method investments are recorded as reductions in the cost of such investments. The Company records the cost method investments at historical cost and subsequently record any dividends received from the net accumulated earnings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reductions in the cost of the investments.
F-11
Note 2 – Summary of Significant Accounting Policies (continued)
Investment in equity investees are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future use of the assets, indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, the Company evaluates the recoverability of long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available.
Customer Deposits
Customer deposits represent amounts received from customers in advance of shipments relating to the sales of the Company’s products.
Loan Payable to Third Parties
Loan payable to third parties represent amounts the Company borrowed from third parties for working capital purpose. As of December 31, 2021, the balance amounted $7,002,385, the balances are unsecured with interest rate 6% per annum and with one year term from December 17, 2021 to December 16, 2022. If the Company fails to repay the debt, the Company shall pay the third parties for the liquidated damages at the rate of thousandths of the amount in arrears per day, and also compensate the legal costs, execution fees, etc. incurred in realizing the creditor’s rights. As of December 31, 2020, the balance amounted $306,600, the balance is unsecured, interest-free and due upon demand.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The Company adopted ASC 842 on January 1, 2019 on a modified retrospective basis and elected the practical expedients permitted under the transition guidance, which allows the Company to carryforward the historical lease classification, the assessment on whether a contract is or contains a lease, and the initial direct costs for any leases that exist prior to adoption of the new standard. Leases with an initial term of 12 months or less are not recognized on the balance sheet and the associated lease payments are included in the consolidated statements of comprehensive income (loss) on a straight-line basis over the lease term. The standard did not materially impact our consolidated net earnings and cash flows.
F-12
Note 2 – Summary of Significant Accounting Policies (continued)
Revenue Recognition
The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective approach. There is no adjustment to the opening balance of retained earnings at January 1, 2018 since there was no change to the timing and pattern of revenue recognition upon adoption of ASC 606. Under ASC 606, revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects to be entitled to in exchange for those goods or services. The Company’s revenues are primarily derived from the following sources:
Sales of products: The Company recognizes sales revenue, net of sales taxes and estimated sales returns, at the time the product is delivered to the customer and control is transferred (point of sale).
For the Company’s electric vehicles sales contracts, the Company provides a warranty for 12 months from the products are delivered. The Company determines such product warranty is an assurance-type warranty and is not a separated performance obligation in revenue recognition, because the nature of warranty is to provide assurance that a product will function as expected and in accordance with customer’s specification. The Company estimates the warranty costs when the promised good is delivered to the customer and accrues as warranty liabilities.
Commission income: The Company acts as an agent without assuming the risks and rewards of ownership of the goods and reports the revenue on a net basis. Revenue is recognized based on the completion of the contracted service.
Government manufacturing rebate income: The Company sells electric vehicles in China and is eligible for a government manufacturing rebate on each qualifying electric vehicle sold. The government manufacturing rebates are recognized as part of revenue when sales are finalized, amount of rebates can be reasonably estimated and collection is assured. The collectability of rebates can be assured as long as the sales are deemed qualifying based on the criteria set by the government.
Revenue is reported net of all value added taxes. The Company does not routinely permit customers to return products and historically, customer returns have been immaterial.
Cost of Revenues
Cost of revenues includes cost of raw materials purchased, inbound freight cost, cost of direct labor, depreciation expense and other overhead. Write-down of inventory for lower of cost or net realizable value adjustments is also recorded in cost of revenues.
Shipping and Handling
Shipping and handling costs are expensed as incurred and included in selling expenses.
Subsidy Income
The Company periodically receives various government grants such as “High Technology Projects Subsidy” and “Scientific Research Grant”. There is no guarantee the Company will continue to receive such grants in the future.
F-13
Note 2 – Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
The Company’s financial information is presented in U.S. dollars. The functional currency of the Company’s subsidiaries in the PRC is the RMB, the currency of the PRC. Any subsidiary transactions, which are denominated in currencies other than RMB, are translated into RMB at the exchange rate quoted by the People’s Bank of China prevailing at the dates of the transactions, and exchange gains and losses are included in the statements of comprehensive income (loss) as foreign currency transaction gain or loss. The consolidated financial statements of the Company have been translated into U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”. The financial information is first prepared in RMB and then is translated into U.S. dollars at period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity. Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
| December 31, 2021 |
| December 31, 2020 |
| December 31, 2019 | ||||||||||
US$: RMB exchange rate | Period End |
| $ | 0.1569 | Period End |
| $ | 0.1533 |
| Period End |
| $ | 0.1436 | ||
| Average | $ | 0.1550 |
| Average | $ | 0.1448 |
| Average | $ | 0.1448 | ||||
Research and development costs
Research and development expenses include costs directly attributable to the conduct of research and development projects, including the cost of salaries and other employee benefits, testing expenses, consumable equipment and consulting fees prior to the establishment of technological feasibility. All costs associated with research and development are expensed as incurred.
Comprehensive Income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under GAAP are recorded as an element of stockholders’ equity but are excluded from net income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustment from those subsidiaries not using the U.S. dollar as their functional currency.
Income Taxes
The Company’s subsidiaries in China are subject to the income tax laws of the PRC. No taxable income was generated outside the PRC as of December 31, 2021. The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 requires an asset and liability approach for financial accounting and reporting for income taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or future deductibility is uncertain.
ASC 740-10-25 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. It also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income tax disclosures. The statute of limitation on the PRC tax authority’s audit or examination of previously filed tax returns expires three years from the date they were filed. There were no material uncertain tax positions as of December 31, 2021 and 2020.
F-14
Note 2 – Summary of Significant Accounting Policies (continued)
Value Added Tax (“VAT”)
The Company is subject to VAT for selling merchandise. The applicable VAT rate is 11% or 13% or 17% (depending on the type of goods involved) for products sold in the PRC. The applicable VAT rate of 17% and 11% decreased to 16% and 10% starting from May 2018, and further decreased to 13% and 9% from April 1, 2019. The amount of VAT liability is determined by applying the applicable tax rate to the invoiced amount of goods sold (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). Under the commercial practice of the PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be issued subsequent to the date on which revenue is recognized, and there may be a considerable delay between the date on which the revenue is recognized and the date on which the tax invoice is issued. In the event the PRC tax authorities dispute the date on which revenue is recognized for tax purposes, the PRC tax office has the right to assess a penalty based on the amount of taxes which is determined to be late or deficient, with any penalty being expensed in the period when a determination is made by the tax authorities that a penalty is due. During the reporting periods, the Company had no dispute with PRC tax authorities and there was no tax penalty incurred.
Earnings (loss) per Share (“EPS”)
The Company computes earnings (loss) per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of December 31, 2021 and 2020, the total number of registered and unregistered warrants outstanding both was 6,557,635 (split-adjusted 655,764). For the years ended December 31, 2021, 2020 and 2019, no warrants were included in the diluted income (loss) per share as they would be anti-dilutive.
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Risks and Uncertainties
The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, in addition to the general state of the PRC economy. The Company’s operating results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expense transactions are denominated in RMB, and primarily all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China, the central bank of China. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
F-15
Note 2 – Summary of Significant Accounting Policies (continued)
The Company does not carry any business interruption insurance, products liability insurance or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that investors would lose their entire investment in the Company.
COVID-19
The Company’s operations were affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which in March 2020, was declared a pandemic by the World Health Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Company’s business has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent in fiscal 2020.
From late January 2020 to the middle of February 2020, the Company had to temporarily suspend our manufacturing activities due to government restrictions. During the temporary business closure period, our employees had very limited access to our manufacturing facilities and the shipping companies were not available and as a result, the Company experienced difficulty delivering our products to the customers on a timely basis. In addition, due to the COVID-19 outbreak, some of the customers or suppliers may experience financial distress, delay or default on their payments, reduce the scale of their business, or suffer disruptions in their business due to the outbreak. Any increased difficulty in collecting accounts receivable, delayed raw materials supply, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations.
As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to be controlled and most provinces and cities have resumed business activities under the guidance and support of the government. In light of the current situation, the Company believes that the impact of the COVID-19 outbreak on the business is both temporary and limited, and that the revenues have started growing again in fiscal 2021. However, there is still significant uncertainty regarding the possibility of another wave of infections, and the breadth and duration of business disruptions related to COVID-19, which could continue to have material impact to the Company’s operations.
Recent accounting pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company adopted this guidance and this guidance did not have a material impact on the consolidated financial statements.
F-16
Note 2 – Summary of Significant Accounting Policies (continued)
In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for the Company beginning January 1, 2021. The Company adopted this guidance and this guidance did not have a material impact on the consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The Company adopted this guidance and this guidance did not have a material impact on the consolidated financial statements.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial statements.
F-17
Note 3 – Variable Interest Entity
Before August 3, 2021, Tantech BVI controls certain entities through a series of agreements known as variable interest agreements (“VIE”).
Wangbo, Shangchi Automobile and its subsidiary, Shenzhen Yimao, are controlled through contractual arrangements in lieu of direct equity ownership by the Company. These agreements include an Exclusive Management Consulting and Technology Agreement, two Equity Pledge Agreements, two Exclusive Call Option Agreements, two Proxy Agreements and two Powers of Attorney (collectively “VIE Agreements”). Pursuant to the above VIE Agreements, Jiamu has the exclusive right to provide Wangbo consulting services related to business operations including technical and management consulting services. All the above contractual agreements obligate Jiamu to absorb a majority of the risk of loss from Wangbo’s activities and entitle Jiamu to receive a majority of their residual returns. In essence, Jiamu has gained effective control over Wangbo. Wangbo owns 51% and Jiyi owns 19% of Shangchi Automobile respectively. A third party owns 30% of Shangchi automobile.
In accordance with accounting standards regarding consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. The VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. Therefore, the Company believes that Wangbo should be considered as a Variable Interest Entity (“VIE”) under the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 “Consolidation”.
Jiamu is deemed to have a controlling financial interest in and be the primary beneficiary of Wangbo because it has both of the following characteristics:
| ● | The power to direct activities at Wangbo that most significantly impact such entity’s economic performance, and |
| ● | The obligation to absorb losses of, and the right to receive benefits from Wangbo that could potentially be significant to such entity. |
Pursuant to the contractual arrangements with Wangbo, Wangbo pays service fees equal to 95% of its net profit after tax payments to Jiamu. At the same time, Jiamu is obligated to absorb a majority of Wangbo’s losses. Such contractual arrangements are designed so that the operation of Wangbo is for the benefit of Jiamu and ultimately, the Company.
F-18
Note 3 – Variable Interest Entity (continued)
Risks associated with the VIE structure
The Company believes that the contractual arrangements with its VIE and the VIE’s shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and VIE; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and VIE; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and VIE may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and VIE to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds from public offering to finance the Company’s business and operations in China. |
The Company’s ability to conduct its business through its VIE may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE and its VIE’s subsidiary in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and its shareholders and it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary and its VIE.
Dismantling VIE structure
On August 3, 2021, the Company completed dismantling its VIE structure and began controlling Wangbo, Shangchi Automobile and its subsidiary, Shenzhen Yimao, through direct equity ownership instead of a series of contractual arrangements.
Prior to August 3, 2021, the Company’s wholly owned subsidiary - Jiamu effectively controlled and was entitled to the economic benefits of the Company’s VIE entity - Wangbo through a series of contractual arrangement, which were designed to provide Jiamu with certain powers, rights, and obligations to Wangbo, as set forth under the VIE Agreements. Accordingly, Jiamu was regarded as the primary beneficiary of Wangbo for accounting purposes and consolidated the financial results of the Wangbo and its subsidiaries under the ASC810 “Consolidation.”
On July 28, 2021, Jiamu, Wangbo and the nominal shareholders of Wangbo signed Terminational Agreement to terminate the VIE agreement and the nominal shareholders who previously owns 100% equity interest of Wangbo transferred all their equity interest in Wangbo to Jiamu for a nominal consideration (the “Dismantlement Transaction”). As a result, Wangbo becomes a wholly owned subsidiary of Jiamu. The Dismantlement Transaction was completed on August 3, 2022. Since Wangbo is effective controlled by the Company through our wholly owned subsidiary Jiamu before and after the Dismantlement Transaction, the Dismantlement Transaction is considered a reorganization under common control and the consolidation of Wangbo and its subsidiaries has been accounted for at historical cost in accordance with Accounting Standards Codification (“ASC”) 805-50-30-5.
After the VIE was dismantled, the Company owns 100% of equity interests in Wangbo. Wangbo and Jiyi keep owning 51% and 19% of Shangchi Automobile respectively. A third party keeps owning 30% of Shangchi Automobile.
F-19
Note 3 – Variable Interest Entity (continued)
The following assets and liabilities of the consolidated VIE were included in the accompanying consolidated balance sheets of the Company as of December 31, 2021 and 2020, after elimination of intercompany balances:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Current assets |
|
|
|
| ||
Cash and cash equivalents | $ | — | $ | 206,893 | ||
Restricted cash |
| — |
| 220,109 | ||
Accounts receivable, net |
| — |
| — | ||
Prepaid taxes |
| — |
| 1,045,027 | ||
Inventories, net |
| — |
| 301,607 | ||
Advances to suppliers, net |
| — |
| 333,010 | ||
Prepaid expenses and other receivables, net |
| — |
| 37,104 | ||
Total Current Assets |
|
| 2,143,750 | |||
Non-current assets |
|
|
|
| ||
Property, plant and equipment, net |
| — |
| 1,157,803 | ||
Manufacturing rebate receivable |
| — |
| 5,755,237 | ||
Intangible assets, net |
| — |
| 462,279 | ||
Total Assets | $ | — | $ | 9,519,069 | ||
Current liabilities |
|
|
|
| ||
Bank acceptance notes payable | $ | — | $ | 220,109 | ||
Accounts payable |
| — |
| 1,207,623 | ||
Customer deposits |
| — |
| 381,623 | ||
Taxes payable |
| — |
| 369 | ||
Due to related parties |
| — |
| 892,590 | ||
Accrued liabilities and other payables |
| — |
| 350,928 | ||
Total Current Liabilities |
| — |
| 3,053,242 | ||
Total Liabilities | $ | — | $ | 3,053,242 | ||
F-20
Note 4 — Liquidity
In fiscal 2021, the Company had a significantly growth in bamboo related products which generated revenue of $53.4 million from its consumer product segment. In addition, two subsidiaries focus on developing and manufacturing of smart electric sanitation vehicles also generated revenue of $1.9 million from Electric Vehicle (the “EV”) segment.
However, the Company had incurred approximately $8.1 million research and development costs on its smart electric sanitation vehicles designed to be used in industrial parks and residential communities. The Company also recorded 100% allowance of total $5.8 million manufacturing rebate receivable due to the fact that there is remote possibility to successfully claim the manufacturing rebate under the newly implemented government policy (see Note 8). These costs offset the increase of the revenues and gross profit in fiscal 2021. Therefore, for the year ended December 31, 2021, the Company incurred continuous loss and had negative cash flows from its operations.
In fiscal 2021, the Company successfully completed two equity financings which resulted in net proceeds of $19.4 million. In addition, the Company obtained net proceeds of $9.1 million and $5.6 million from equity financings in November 2020 and September 2017, respectively. As a result, the Company had approximately $43.1 million cash on hand as of December 31, 2021. Although the Company maintains a positive working capital as of December 31, 2021, the future operations of the Company depend on whether or not the Company can successfully collect its accounts receivable and utilize its advances, as well as how the change of government policies affect its EV business.
The Company currently plans to fund its operations mainly through renewal of bank borrowings, additional equity financing and the continuing financial support by its shareholders and its affiliates controlled by its principal shareholder, if necessary, in the near future to ensure sufficient working capital. The Company has implemented a stricter policy on sales to supermarkets and less credible customers and continues to improve its collection efforts on accounts with outstanding balances. The Company is actively working with its customers and suppliers and expects to fully collect outstanding accounts receivables or utilize the rest of prepayment balance in 2022.
The Company plans to fund the EV segment through additional private placement and continued support from the parent company. The principal shareholder of the Company, along with the affiliated entity, Forasen Group, has agreed to provide financial support to the Company whenever necessary.
Based on its current operating plan, management believes that the above-mentioned measures collectively will provide sufficient liquidity for the Company to meet its future liquidity and capital requirements for at least next twelve months from the date of this report.
Note 5 – Accounts Receivable
Accounts receivable consisted of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Accounts receivable | $ | 48,680,634 | $ | 38,110,487 | ||
Allowance for doubtful accounts |
| (3,717,708) |
| (3,699,890) | ||
Accounts receivable, net | $ | 44,962,926 | $ | 34,410,597 | ||
The movement of allowance for doubtful accounts are as follows:
F-21
Note 6 – Inventory
Inventory consisted of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Raw materials | $ | 542,062 | $ | 489,750 | ||
Finished products |
| 231,836 |
| 53,223 | ||
Work in process |
| 295,800 |
| 128,278 | ||
Total Inventory | $ | 1,069,698 | $ | 671,251 | ||
For the years ended December 31, 2021, 2020 and 2019, the Company recorded inventory markdown in the amounts of $359,501, $92,064 and $1,030,236, respectively.
Note 7 – Advances to Suppliers
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Advances to suppliers | $ | 3,459,374 | $ | 7,033,556 | ||
Allowance for doubtful accounts |
| (38,746) |
| (179,095) | ||
Advances to suppliers, net | $ | 3,420,628 | $ | 6,854,461 | ||
The movement of allowance for doubtful accounts are as follows:
Note 8 – Manufacturing Rebate Receivable
On September 13, 2013, the Chinese Ministry of Finance, the Chinese Ministry of Science and Technology, the Chinese Ministry of Industry and Information Technology, and the Chinese National Development and Reform Commission issued a joint announcement that in order to promote the development, sale and use of alternative energy vehicles, Chinese government will continue to provide a manufacturing rebate for qualifying alternative energy vehicles sold. The government manufacturing rebates are typically provided to eligible alternative energy automobile manufacturers after sales are finalized and paperwork regarding the eligible mileages is submitted. Based on the criteria, Shangchi Automobile (formerly known as Suzhou E-Motors) was eligible for government manufacturing rebates and had $5,755,237 as manufacturing rebate receivable as of December 31, 2020.
In 2021, the Chinese Ministry of Finance, the Chinese Ministry of Science and Technology, the Chinese Ministry of Industry and Information Technology, and the Chinese National Development and Reform Commission implemented a new policy which requires the minimum number of alternative energy vehicles for manufacturing rebate application shall be 10,000 for passenger vehicles and 1,000 for commercial use vehicles.
The Company determined that there is remote possibility to successfully claim the manufacturing rebate under the newly implemented policy. As a result, the Company recorded 100% allowance against the manufacturing rebate receivable as of December 31, 2021.
F-22
Note 9 – Property, Plant and Equipment, net
Property, plant and equipment stated at cost less accumulated depreciation consisted of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Building | $ | 5,228,347 | $ | 5,631,049 | ||
Machinery and Production equipment |
| 1,307,356 |
| 1,311,624 | ||
Electronic equipment |
| 203,305 |
| 193,912 | ||
Office equipment |
| 48,440 |
| 38,524 | ||
Automobiles |
| 545,006 |
| 545,008 | ||
Construction in progress |
| 343,401 |
| 133,339 | ||
Subtotal |
| 7,675,855 |
| 7,853,456 | ||
Less: Accumulated depreciation |
| (5,571,908) |
| (5,375,544) | ||
Property, plant and equipment, net | $ | 2,103,947 | $ | 2,477,912 | ||
Depreciation expense was $444,462, $436,427 and $703,113 for the years ended December 31, 2021, 2020 and 2019, respectively, among which $444,462, $436,427 and $462,639 were for continuing operations, respectively.
As of December 31, 2021 and 2020, building with net book value of $588,063 and $895,742 respectively, were pledged as collateral for bank loans (Note 12).
Note 10 – Intangible Assets, net
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Software | $ | 30,838 | $ | 25,957 | ||
Land use rights* |
| 314,456 |
| 307,241 | ||
Patents |
| 4,707,000 |
| 4,599,000 | ||
Subtotal |
| 5,052,294 |
| 4,932,198 | ||
Less: Accumulated amortization |
| (4,846,323) |
| (4,268,165) | ||
Intangible assets, net | $ | 205,971 | $ | 664,033 | ||
*There is no private ownership of land in China. Land is usually owned by the local government and the government grants land use rights for specified terms. The Company acquired land use rights from the local government in December 2002 for period of 50 years. As of December 31, 2021 and 2020, land use rights with net book value of $200,204 and $201,755, respectively, were pledged as collateral for bank loans (Note 12).
Amortization expense for intangible assets totaled $472,140, $441,489 and $459,898 for the years ended December 31, 2021, 2020 and 2019, respectively, among which $472,140, $441,489 and $441,489 were for continuing operations, respectively.
F-23
Note 11 – Leases
Effective January 1, 2019, the Company adopted ASC 842, the new lease accounting standard using a modified retrospective transition method which allowed the Company not to recast comparative periods presented in its consolidated financial statements. In addition, the Company elected the package of practical expedients, which allowed the Company to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed below and had no impact on retained earnings as of December 31, 2021. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.
Supplemental balance sheet information related to operating leases was as follows:
| December 31, 2021 | ||
$ | 313,172 | ||
$ | 115,330 | ||
| 223,291 | ||
$ | 338,621 | ||
The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of December 31, 2021:
Remaining lease term and discount rate: |
|
| |
Weighted average remaining lease term (years) |
| 3.10 | |
Weighted average discount rate |
| 4.50 | % |
The following is a schedule of maturities of lease liabilities as of December 31, 2021:
Twelve months ending December 31, |
| ||
2022 | $ | 104,589 | |
2023 |
| 144,916 | |
2024 |
| 98,246 | |
2025 |
| 14,121 | |
Total future minimum lease payments |
| 361,872 | |
Less: imputed interest |
| 23,251 | |
Total | $ | 338,621 |
F-24
Note 12 – Short-term Bank Loans
The Company’s short-term bank loans consist of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Loan payable to Bank of China Lishui Branch | $ | 2,679,852 | $ | 2,958,690 | ||
Loan payable to Shanghai Pudong Development (“SPD”) Bank Lishui Branch |
| 2,039,700 |
| 2,606,100 | ||
Total | $ | 4,719,552 | $ | 5,564,790 | ||
On July 2, 2021, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $2,679,852 (RMB 17,080,000) for six months with fixed annual interest rate of 4.65%. The purpose of the loan was for purchasing bamboo charcoal materials. The loan was collateralized by building and land use right of Tantech Bamboo with maximum guaranteed amount up to approximately $4.1 million (RMB25,960,000). The loan was also guaranteed by two related parties, Lishui Jiuanju Commercial Trade Co., Ltd. (“LJC”), and Forasen Group Co., Ltd., one unrelated third party, Zhejiang Meifeng Tea Industry Co., Ltd., and other three related individuals, Zhengyu Wang, Chairman of the Board and previous CEO of the Company, his wife, Yefang Zhang, and his relative, Aihong Wang. The loan was renewed for one year from December 22, 2021 with fixed annual interest rate of 4.5%.
On April 7, 2021, Tantech Bamboo entered into a short-term loan agreement with SPD Bank (Lishui Branch) to borrow $ 2,510,400 (RMB 16 million) for one year with fixed annual interest rate of 5.65%. The purpose of the loan was to fund working capital needs. The loan was guaranteed by three related parties, Zhengyu Wang and his wife, Yefang Zhang and Forasen Group Co., Ltd., a company owned by Zhengyu Wang and Yefang Zhang. The loan was also collateralized by building and land use right of Tantech Energy with maximum guaranteed amount up to approximately $4.6 million (RMB29,250,000). The Company repaid $470,700 (RMB 3.0 million) as required during years ended December 31, 2021. The company further repaid $ 156,900 (RMB 1 million) subsequently. And the remaining loan was subsequently renewed for another year with new maturity date of March 30, 2023, at a fixed annual interest rate of 3.90%. The renewed loan was guaranteed by one more unrelated third party, Lishui Zhongyun Mitai Industrial Co., Ltd.
As of December 31, 2021, total bank loans payable amounted to $4,719,552.
On July 9, 2020, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $2,958,690 (RMB 19,300,000) for one year with fixed annual interest rate of 4.85%. The purpose of the loan was for purchasing bamboo charcoal materials. The loan was collateralized by building and land use right of Tantech Bamboo with maximum guaranteed amount up to approximately $4.0 million (RMB25,960,000). The loan was also guaranteed by two related parties, Lishui Jiuanju Commercial Trade Co., Ltd. (“LJC”), and Forasen Group Co., Ltd., one unrelated third party, Zhejiang Meifeng Tea Industry Co., Ltd., and other three related individuals, Zhengyu Wang, Chairman of the Board and previous CEO of the Company, his wife, Yefang Zhang, and his relative, Aihong Wang. The loan was fully repaid upon its maturity in July 2021.
On April 27, 2020, Tantech Bamboo entered into a short-term loan agreement with SPD Bank (Lishui Branch) to borrow $2,912,700 (RMB 19 million) for one year with fixed annual interest rate of 4.785%. The purpose of the loan was to fund working capital needs. The loan was guaranteed by three related parties, Zhengyu Wang and his wife, Yefang Zhang and Forasen Group Co., Ltd., a company owned by Zhengyu Wang and Yefang Zhang. The loan was also collateralized by building and land use right of Tantech Energy with maximum guaranteed amount up to approximately $4.5 million (RMB29,250,000). The Company repaid $306,600 (RMB 2 million) as required in fiscal year 2020. The loan was fully repaid upon its maturity by April 2021.
On January 6, 2020, Tantech Bamboo entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $2,725,674 (RMB 17.78 million) for six months with annual interest rate of 5.88%. The purpose of the loan was to fund working capital needs. The loan was collateralized by building and land use right of Tantech Bamboo with maximum guaranteed amount up to approximately $4.0 million (RMB25,960,000). The loan was also guaranteed by three related parties, Zhengyu Wang, Chairman of the Board and previous CEO of the Company and his wife, Yefang Zhang and LJC, a related party, the president of which was also the present CEO and previous COO of the Company. The Company repaid the loan upon maturity.
F-25
Note 12 – Short-term Bank Loans (continued)
On January 6, 2020, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $1,533,000 (RMB 10 million) for six months with annual interest rate of 4%. The purpose of the loan was for working capital needs. The loan was guaranteed by Tantech Bamboo, two individual related parties, Zhengyu Wang and Yefang Zhang and an unrelated third party, Zhejiang Meifeng Tea Industry Co., Ltd. The loan was also collateralized by two properties owned by Zhengyu Wang and Yefang Zhang and building and land use right of Tantech Bamboo with maximum guaranteed amount up to approximately $1.5 million (RMB 10 million). The Company repaid the loan upon maturity.
As of December 31, 2020, total bank loans payable amounted $ 5,564,790.
For the years ended December 31, 2021, 2020 and 2019, the interest expense related to bank loans was $265,248, $300,125 and $421,646, respectively.
Note 13 – Bank Acceptance Notes Payable
Bank acceptance notes payable do not carry a stated interest rate but have a specific due date usually for a period of up to one year. These notes are negotiable documents issued by or guaranteed by financial institutions on the Company’s behalf to vendors. These notes can either be endorsed by the vendor to other third parties as payment or can be factored to other financial institutions before becoming due. These notes are short-term in nature. As collateral security for financial institutions’ undertakings, the Company is required to maintain deposits with such financial institutions in restricted cash amounts of 0% to 100% of the balances of the bank acceptance notes. As of December 31, 2020, deposits of $220,109 were reported as restricted cash on balance sheet.
Bank acceptance notes payable consisted of the following:
| (a) | Bank acceptance notes payable of $220,109 (RMB1,435,805) issued by Zhang Jiagang Rural Commercial Bank with due dates from February 10, 2021 to March 29, 2021. The Company is required to maintain restricted cash deposits at 100% of the notes payable with the bank, in order to ensure future credit availability. These notes were fully paid upon maturity and restricted deposit was also released upon the payments. |
| (b) | Commercial acceptance notes payable of $1,533,000 (RMB10,000,000) issued by Tantech Bamboo and guaranteed by SPD Bank Lishui Branch with due date on April 19, 2021. The Company is required to maintain restricted cash deposits at 100% of the notes payable with the bank, in order for the bank to make guarantee for the notes and ensure the availability for future credit. A related party, Zhejiang Xinsen Industrial Co., Ltd. (“Zhejiang Xinsen”), made collateral for this commercial acceptance notes payable on behalf of Tantech Bamboo with a -year term deposit of approximately $1,533,000 (RMB10,000,000), which has a due date of April 21, 2021. The note was fully paid upon maturity by Zhejiang Xinsen on behalf of Tantech Bamboo. |
F-26
Note 14 – Related Party Balances and Transactions
Due from a related party
In October 2021, an aggregated of $10,354,051 (RMB65,991,404) funds was transferred to an Entrusted Bank Account under Mr. Zhengyu Wang, the Chairman and previous CEO of the Company, for general business-related purpose. Both the fund balance of $10,354,051 (or RMB65,991,404) and the related banking interest of $144,851 (or RMB923,079) were transferred back to the Company by April 6, 2022 and the funds was under full custody and control by the Company's treasurer during the above period.
Due to related parties
The balances due to related parties were as follows:
*Mr. Hengwei Chen was the former general manager of Shangchi Automobile (formerly known as Suzhou E-Motors). The Company acquired 70% equity interest in Shangchi Automobile and issued 2,500,000 restricted shares of Tantech’s common stock the Henglong Chen in connection with the acquisition of Shangchi Automobile. As of December 31, 2021 and 2020, the amount due to Mr. Hengwei Chen and his affiliates were $902,141 and $881,442, respectively.
As of December 31, 2021 and 2020, the Company borrowed $806,556 and $1,058,188 from Forasen Group and its affiliates, controlled by Mr. Zhengyu Wang, Chairman and previous CEO of the Company, for working capital purpose. Mr. Wangfeng Yan, the CEO of the Company, and his affiliates, also made advances to the Company. The balance due to Mr. Wangfeng Yan and his affiliates was $138,724 and $79,457 as of December 31, 2021 and 2020, respectively. All balances of due to the related parties were unsecured, interest-free and due upon demand.
The Company’s major shareholder Mr. Zhengyu Wang, his wife Ms. Yefang Zhang and his relative Ms. Aihong Wang, as well as related party entities controlled by Mr. Wang, and LJC the company controlled by the CEO, Mr. Wangfeng Yan provided guarantees to the Company’s bank loans (Note 12).
Advance to vendor – related party
During the year ended December 31, 2020, the Company paid $3,089,690 (RMB20,154,532) to LJC, a company controlled by the CEO, Mr. Wangfeng Yan, to purchase bamboo charcoal materials. As of December 31, 2020, the Company received materials of $1,556,690 (RMB 10,154,532 with tax), the remaining advance of $1,533,000 (RMB 10 million) was returned by the vendor in March 2021.
Disposal of fixed asset to related party
On July 29, 2021, Tantech Bamboo entered into a sales agreement with Xigema Holding Hangzhou Co., Ltd. (“Xigema”) to sale part of its real property for an amount of approximately $0.8 million (RMB4,923,564). Xigema is controlled by Aihong Wang, who is a relative of Mr. Zhengyu Wang.
Lease arrangement with related party
On July 6, 2020, Tantech Bamboo signed a lease agreement with Zhejiang Forasen Food Co., Ltd. (“Forasen Food”) to lease part of its production facilities of approximately 1,914 square meters to Forasen Food for ten years with monthly rent of approximately $5,900 (RMB38,280). Forasen Food is controlled by Ms. Yefang Zhang who is the director of the Company. For the year ended December 31, 2021, the Company recorded rent income of $68,540 from Forasen Food. This lease agreement was terminated on July 13, 2021.
F-27
Note 14 – Related Party Balances and Transactions (continued)
On July 13, 2021, Tantech Bamboo signed a lease agreement with Zhejiang Nongmi Food Co., Ltd. (“Nongmi Food”) to lease part of its production facilities of approximately 1,180 square meters to Nongmi Food for ten years with monthly rent of approximately $2,400 (RMB15,338). Nongmi Food is controlled by Ms. Yefang Zhang who is the director of the Company. For the years ended December 31, 2021, the Company recorded rent income of $13,086 from Nongmi Food.
On July 13, 2021, Tantech Bamboo signed a lease agreement with Zhejiang Nongmi Biotechnology Co., Ltd. (“Nongmi Biotechnology”) to lease part of its production facilities of approximately 1,914 square meters to Nongmi Biotechnology for ten years with monthly rent of approximately $5,900 (RMB38,280). Nongmi Biotechnology is controlled by Ms. Yefang Zhang who is the director of the Company. For the years ended December 31, 2021, the Company recorded rent income of $36,332 from Nongmi Biotechnology.
Note 15 – Commitments and Contingencies
Guaranty provided for related party
In July 2017, Tantech Energy provided a guarantee with SPD Bank Lishui Branch on behalf of Forasen Group for maximum amount of approximately $9.0 million (RMB57,070,000) by pledging certain land and building as the collateral for the loan and notes. The guarantee expired on July 23, 2020.
In July 2020, Tantech Bamboo provided a guarantee with Bank of China Lishui Branch for Forasen Food for maximum amount of approximately $1.6 million (RMB10 million) by pledging certain land and building as the collateral for the loan and notes. The guarantee will expire on July 8, 2023. Forasen Food is controlled by Ms. Yefang Zhang who is the Company’s director.
Operating leases
Shangchi Automobile leased certain factory facilities under operating leases through August 9, 2021. The annual rent under operating lease agreement was approximately $155,000 (RMB 1 million). On August 10, 2021, Shangchi Automobile renewed the operating lease agreement with the landlord for one year until August 9, 2022 with annual rent of approximately $155,000 (RMB 1 million).
Shenzhen Yimao leased office space under operating leases for one year from November 12, 2018 to November 11, 2019 with annual rent of approximately $14,500 (RMB93,600). The lease agreement was renewed for another year until November 11, 2020.
On November 20, 2020, Shenzhen Yimao signed a new operating lease agreement for office space for one year from November 23, 2020 to November 22, 2021 with annual rent of approximately $6,900 (RMB 44,352). On January 17, 2022, the lease agreement was renewed for another year until January 16, 2023.
Tantech Bamboo leased factory facilities and office space from Tantech Energy after Tantech Energy was sold in July 2019 under operating leases until December 31, 2019. This agreement was renewed for another year from January 1, 2020 to December 31, 2020 with annual rent of approximately $192,000 (RMB1,238,784). On December 2020, the Company renewed the above agreement for another year to December 31, 2021. On December 10, 2021, Tantech Charcoal and Tantech Energy signed a new lease agreement for ten years from January 1, 2022 to December 31, 2031 with annual rent of approximately $192,000 (RMB1,238,784).
The rental expense for the years ended December 31, 2021, 2020 and 2019 were $427,493, $299,562 and $167,526, respectively.
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Note 15 – Commitments and Contingencies (continued)
Contingencies
In May 2018, the Company’s wholly owned subsidiary Tantech Bamboo signed a guarantee agreement with other co-guarantors to jointly and severally guarantee the share repurchase obligation of Forasen Group, in favor of an unrelated third party. Such third party filed a complaint to claim a payment of approximately $4.6 million (RMB 29.50 million) against Forasen Group, together with the guarantors on January 9, 2019. On August 30, 2019, the court issued a settlement by which another third party agreed to purchase the shares from the plaintiff by paying approximately $14.1 million (RMB 90 million), and all the co-guarantors including Tantech Bamboo jointly and severally guarantee the payment obligation regarding the $14.1 million (RMB 90 million) and other possible fees, for three years from June 30, 2020, the due date of the share purchase payment obligation. On June 11, 2021, a new settlement agreement was reached by all parties. As of the settlement date, total payment obligation increased to approximately $16.5 million (RMB 105.36 million) due to accrued interest for unpaid portion. The accused third party has paid approximately $5.6 million (RMB 35.86 million) and approximately $10.9 million (RMB 69.50 million) remains unpaid including accrued interest. As of the date of this filing, all outstanding payments were fully paid by the accused third party and dispute was settled.
On March 23, 2021, Mr. Hengwei Chen filed a lawsuit against Shangchi Automobile and the Company for a debt dispute of approximately $1.8 million (RMB 11.35 million). Mr. Chen was the former general manager of Shangchi Automobile before the Company acquired Shangchi Automobile in 2017. On December 15, 2021, the court ordered Shangchi Automobile to pay Mr. Hengwei Chen approximately $1.4 million (RMB 8.95 million). The Company filed an appeal on January 4, 2022. This case is still in appeal period as of the date of this filing. The Company has recorded the disputed amount and further accrued interest of $0.5 million (RMB3.5 million) in the accrued liabilities based on the best estimate of the management and the Company’s legal counsel as of December 31, 2021. The court also extended an order to freeze total cash of $422,832 until March 22, 2022 which was recorded as restricted cash as of December 31, 2021.
Note 16 – Stockholders’ Equity
On March 23, 2020, the Company issued 35,592 (split-adjusted 3,559) common shares to an individual for consulting services provided for the period from September 2019 to February 2020, which were valued at $33,812 based on the quoted market price at issuance.
On November 24, 2020, the Company completed an offering of 6,060,608 (split-adjusted ) common shares at an offering price of $1.65 (split-adjusted $16.5) per share. The gross proceeds were approximately $10 million before deducting placement agent’s commission and other offering expenses, resulting in net proceeds of approximately $9.1 million.
On May 18, 2021, the Company issued 1,600,000 (split-adjusted 160,000) common shares to its employees under the Company’s 2014 Share Incentive Plan, which were valued at $1.84 million based on the quoted market price at issuance.
On June 7, 2021, the Company completed an offering of 5,380,000 (split-adjusted 538,000) common shares at an offering price of $1.30 (split-adjusted $13.00) per share for total net proceeds of $6,939,000 after deducting legal costs related to the offering.
On July 15, 2021, the Company increased its authorized shares from 50,000,000 (split-adjusted 5,000,000) to 600,000,000 (split-adjusted 60,000,000) shares.
On December 6, 2021, the Company completed an offering of 21,120,509 (split-adjusted 2,112,051) common shares at an offering price of $0.65 (split-adjusted $6.50) per share for total net proceeds of $12,423,706 after deducting legal costs related to the offering.
F-29
Note 16 – Stockholders’ Equity (continued)
September 2017 Offering Warrants
In connection with the offering closed in September 2017, the Company registered and issued warrants to purchase an aggregate of 1,078,045 (split-adjusted 107,804) common shares, consisting of 945,654 (split-adjusted 94,565) common shares exercisable underlying investor warrants and 132,391 (split-adjusted 13,239) common shares exercisable underlying placement agent warrants. All warrants carry a term of 5 years. The initial exercise price of the investor warrants and the placement agent warrants was $4.25 (split-adjusted $42.5) per share and $4.675 (split-adjusted $46.75) per share, respectively. The investor warrants can be exercisable immediately as of the date of issuance. The placement agent warrants are not exercisable for a period of 180 days after the effective date of the offering. A holder of the warrants also will have the right to exercise its warrants on a cashless basis if the registration statement or prospectus contained therein is not available for the issuance of the common shares issuable upon exercise thereof. The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% of the Company’s common shares.
During the year ended December 31, 2020, 944,655 (split-adjusted 94,465) common shares were issued upon excise of investor warrants at $0.001 (split-adjusted $0.01) per share. The exercise price of such warrants was reduced from $4.25 (split-adjusted $42.5) per share to $0.001 (split-adjusted $0.01) per share by virtue of the Company’s entry into a securities purchase agreement on November 20, 2020.
November 2020 Offering Warrants
In connection with and upon closing of the offering on November 24, 2020, the Company issued registered warrants to purchase up to 2,754,820 (split-adjusted 275,482) common shares and unregistered warrants to purchase up to 3,305,788 (split-adjusted 330,579) common shares. Such registered and unregistered warrants are immediately exercisable, expire five years from the date of issuance and have an exercise price of $1.81 (split-adjusted $18.10) per share. The placement agent also received unregistered warrants in connection with this offering exercisable for up to 363,637 (split-adjusted 36,364) common shares at $1.815 (split-adjusted $18.15) per share, exercisable between May 24, 2021 to November 24, 2023.
Management determined that these warrants meet the requirements for equity classification under ASC 815-40 because they are indexed to its own stock. The warrants were recorded at their fair value on the date of issuance as a component of shareholders’ equity.
As of December 31, 2021, the total number of common shares underlying registered and unregistered warrants outstanding was 6,557,635 (split-adjusted 655,764). These warrants have weighted average of remaining life of 3.73 years and weighted average exercise price of $1.87 (split-adjusted $18.70).
Share Consolidation
On February 24, 2022, the Company’s Board approved a share consolidation of the Company’s common shares at the ratio of -for-ten reverse split with the effective date of February 25, 2022. The objective of the share consolidation is to enable the company to regain compliance with NASDAQ Marketplace Rule 5550(a)(2) and maintain its listing on Nasdaq.
As a result of the share consolidation, each 10 common shares outstanding automatically combines and converts to one issued and outstanding common share without any action on the part of the shareholder. The share consolidation reduces the number of common shares and from 63,994,606 to 6,399,460. The authorized number of common shares will be reduced by the same -for-ten ratio from 600 million to 60 million.
All share information included in the consolidated financial statements and notes thereto have been retroactively adjusted for the -for-ten reverse split occurred on the first day of the first period presented. (See Note 22).
F-30
Note 17 – Noncontrolling Interests
A reconciliation of non-controlling interest as of December 31, 2021 and 2020 is as follows:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Beginning Balance | $ | 638,846 | $ | 4,346,216 | ||
Proportionate shares of net loss |
| (2,334,853) |
| (3,501,808) | ||
Foreign currency translation adjustment |
| (28,620) |
| (205,562) | ||
Total | $ | (1,724,627) | $ | 638,846 | ||
As of December 31, 2021 and 2020, the noncontrolling interests balances represented the noncontrolling shareholder’s 30% equity interests in Shangchi Automobile (formerly known as Suzhou E-Motors) and its subsidiary Shenzhen Yimao.
F-31
Note 18 – Long Term Investments
On January 10, 2018, the Company invested approximately $18.8 million (or RMB 120 million) to acquire 18% equity interest in Libo Haokun Stone Co., Ltd. (“Libo Haokun”). Libo Haokun holds a government-issued permit and has the exclusive right to mine a 0.11-square-kilometer marble quarry in the central area of Guizhou province, China. Libo Haokun obtained the permit to mine the quarry from the local government in September 2016. The permit was renewed in July 2020 and is further renewable by July 2023.
On November 29, 2019, the Company entered into an investment agreement (the “Investment Agreement”) with Jingning Zhonggang Mining Co., Ltd. (“Jingning Zhonggang”) through Lishui Tantech to acquire 18% of the equity interest of Fuquan Chengwang Mining Co., Ltd. (“Fuquan Chengwang”), a wholly-owned subsidiary of Jingning Zhonggang, at a price of $7.3 million (RMB46.32 million). The consideration equals 18% of RMB257.35 million, the value of the mining right under a permit being renewed by Fuquan Chengwang according to an evaluation report. Fuquan Chengwang is a basalt mining company.
Pursuant to the Investment Agreement, Tantech is obligated to pay the consideration within 30 days after Fuquan Chengwang completes the recording process with the local industrial and commerce administration for transfer of the share ownership. Pursuant to the Investment Agreement, after the transfer of the 18% share ownership, if the value of Fuquan Chengwang is lower than RMB257.35 million according to the financial statements audited by an accounting firm approved by the Tantech, Jingning Zhonggang will be obligated to refund to Tantech the overpaid amount. The payment could be in the form of cash, shares, or other assets with the same value, as selected by Tantech.
After a series of transactions and reorganization, as of December 31, 2019, the Company and Jingning Zhonggang owns 18% and 82% of Libo Haokun, respectively, through Jingning Meizhongkuang Industry Co., Ltd. (“Jingning Meizhongkuang”). Jingning Meizhongkuang owns 100% of Fuquan Chengwang. The Agreements would enable Tantech to indirectly hold a 18% stake in Fuquan Chengwang through holding 18% of the equity interest of Jingning Meizhongkuang.
On April 3, 2020, Lishui Ansheng Energy Technology Co., a third party, signed an investment agreement with Jingning Meizhongkuang to invest in Fuquan Chengwang by paying $7.3 million (RMB 46.5 million) to exchange 18% of the interest of Fuquan Chengwang. After the transaction, the Company’s indirect interest in Fuquan Chengwang was diluted from 18% to 14.76% through holding 18% of the equity interest of Jingning Meizhongkuang.
Fuquan Chengwang received the renewed mining permit in March 2021, and expiration date is March 2024. The mining permit provides it the right to mine a 0.2607-square-kilometer basalt quarry in Fuquan City, Guizhou Province, China.
As the Company did not have significant influence over the equity investees, the investments were accounted for using the cost method. For the year ended December 31, 2021, 2020 and 2019, the Company did not recognize any impairment losses for the long-term investments.
F-32
Note 19 – Taxes
Prepaid taxes
Prepaid taxes as of December 31, 2021 and 2020 consist of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Prepaid value-added tax | $ | 1,609,466 | $ | 1,046,667 | ||
Total | $ | 1,609,466 | $ | 1,046,667 | ||
Taxes Payable
Taxes payable as of December 31, 2021 and 2020 consist of the following:
| December 31, |
| December 31, | |||
2021 | 2020 | |||||
Corporation income tax payable | $ | 578,445 | $ | 415,488 | ||
Other tax payable |
| 245,256 |
| 155,866 | ||
Total | $ | 823,701 | $ | 571,354 | ||
Corporation Income Tax (“CIT”)
Tantech BVI was incorporated in the BVI and is not subject to income taxes under the current laws of BVI.
USCNHK and Euroasia are holding companies registered in Hong Kong and has no operating profit for tax liabilities.
The Group’s subsidiaries in the PRC are subject to the statutory rate of 25%, in accordance with the Enterprise Income Tax law (the “EIT Law”), which was effective since January 1, 2008 Tantech Bamboo was registered in the PRC and is subject to corporate income tax at a reduced rate of 15% starting from 2008 when it was approved by local government as a high-tech company. Tantech Bamboo did not renew the high-tech certificate for fiscal 2020 and subject to corporate tax rate of 25% for the year 2020. Shangchi Automobile was approved by local government as a high–tech company on December 7, 2017 and renewed on December 2, 2020, which valid for three calendar years of 2020 to 2022. Shangchi Automobile was subject to income tax rate of 15%.
The following table reconciles PRC statutory rates to the Company’s effective tax rates for the years ended December 31, 2021, 2020 and 2019:
F-33
Note 19 – Taxes (continued)
The income tax expense (credit) consisted of the following:
Years ended December 31, | |||||||||
| 2021 |
| 2020 |
| 2019 | ||||
Current | $ | 2,429,480 | $ | 1,188,136 | $ | 529,162 | |||
Deferred |
| — |
| (1,799,791) |
| (165,500) | |||
Total | $ | 2,429,480 | $ | (611,655) | $ | 363,662 | |||
Significant components of deferred tax assets and liabilities are as follows:
At December 31, 2021 and 2020, the Company has provided full valuation allowance for deferred tax assets that the Company estimated the Company could not realize due to expected future operating loss in certain entities. As of December 31, 2021 and 2020, the valuation allowance was $7,622,322 and $4,464,601, respectively. The Company’s management reviews this valuation allowance periodically and makes adjustments as necessary.
Note 20 – Segment Information
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Due to business strategic changes, the Company merged consumer products segment and trading segment. As a result, the Company has determined that it has two operating segments as defined by ASC 280, “Segment Reporting”: consumer products and electric vehicles (“EV”). Consumer products segment manufactures, sell and trade Charcoal Doctor branded products and BBQ charcoal in China. The EV segment was acquired in July 2017. Management, including the chief operating decision maker, reviews operation results of consumer products and electric vehicles separately.
F-34
Note 20 – Segment Information (continued)
Adjustments and eliminations of inter-company transactions were not included in determining segment (loss) profit, as they are not used by the chief operating decision maker. The following table presents summary information by segment for the years ended December 31, 2021, 2020 and 2019, respectively.
Consumer product | EV | Total | |||||||||||||||||||||||||
| 2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
| 2019 | ||||||||||
Revenue from external customers | $ | 53,411,271 | $ | 41,899,677 | $ | 49,200,868 | $ | 1,852,402 | $ | 383,993 | $ | 29,702 | $ | 55,263,673 | $ | 42,283,670 | $ | 49,230,570 | |||||||||
Cost of revenue |
| 43,427,306 |
| 37,411,824 |
| 42,409,429 |
| 1,405,041 |
| 395,473 |
| 843,641 |
| 44,832,347 |
| 37,807,297 |
| 43,253,070 | |||||||||
Gross profit |
| 9,983,965 |
| 4,487,853 |
| 6,791,439 |
| 447,361 |
| (11,480) |
| (813,939) |
| 10,431,326 |
| 4,476,373 |
| 5,977,500 | |||||||||
Interest expenses |
| 265,248 |
| 300,125 |
| 427,379 |
| 475,152 |
| — |
| 15,883 |
| 740,400 |
| 300,125 |
| 443,262 | |||||||||
Depreciation & amortization |
| 271,536 |
| 244,601 |
| 276,170 |
| 645,066 |
| 633,315 |
| 627,958 |
| 916,602 |
| 877,916 |
| 904,128 | |||||||||
Capital expenditure |
| 11,417 |
| 2,489 |
| 6,787,833 |
| 213,111 |
| 142,317 |
| 12,106 |
| 224,528 |
| 144,806 |
| 6,799,939 | |||||||||
Segment assets |
| 128,727,344 |
| 106,775,636 |
| 91,431,857 |
| 5,799,714 |
| 9,519,609 |
| 24,018,920 |
| 134,527,058 |
| 116,295,245 |
| 115,450,777 | |||||||||
Segment profit | $ | 4,810,563 | $ | 2,216,371 | $ | 2,346,477 | $ | (15,503,545) | $ | (12,238,599) | $ | (12,005,760) | $ | (10,692,982) | $ | (10,022,228) | $ | (9,659,283) | |||||||||
All of the Company’s long-lived assets are located in the PRC. Geographic information about the revenues, which are classified based on customers, is set out as follows:
Years ended December 31 | |||||||||
| 2021 |
| 2020 |
| 2019 | ||||
Revenue from China | $ | 55,263,673 | $ | 42,283,670 | $ | 49,230,570 | |||
Revenue directly from foreign countries |
| — |
| — |
| — | |||
Total Revenue | $ | 55,263,673 | $ | 42,283,670 | $ | 49,230,570 | |||
Note 21 – Major Customers and Suppliers
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the year ended December 31, 2021, four major customers accounted for approximately 21%, 19%, 19% and 13% of the Company’s total sales, respectively. For the year ended December 31, 2020, five major customers accounted for approximately 28%, 20%, 14%, 12% and 10% of the Company’s total sales, respectively. For the year ended December 31, 2019, six major customers accounted for approximately 19%, 19%, 18%, 17%, 13% and 12% of the Company’s total sales, respectively.
As of December 31, 2021, four customers accounted for approximately 29%,26%, 25% and 12% of the Company’s accounts receivable balance.
As of December 31, 2020, four customers accounted for approximately 32%, 22%, 21% and 20% of the Company’s accounts receivable balance.
The Company also had certain major suppliers whose purchases individually represented 10% or more of the Company’s total purchases. For the year ended December 31, 2021, two major suppliers accounted for approximately 46% and 19% of the Company’s total purchases, respectively. For the year ended December 31, 2020, two major suppliers accounted for approximately 53% and 17% of the Company’s total purchases, respectively. For the year ended December 31, 2019, three major suppliers accounted for approximately 38%, 20% and 18% of the Company’s total purchases, respectively.
F-35
Note 22 – Subsequent Events
Share Consolidation
On February 24, 2022, the Company’s Board approved a share consolidation of the Company’s common shares at the ratio of reverse split with the effective date of February 25, 2022. The objective of the share consolidation is to enable the company to regain compliance with NASDAQ Marketplace Rule 5550(a)(2) and maintain its listing on Nasdaq.
As a result of the share consolidation, each 10 common shares outstanding automatically combines and converts to one issued and outstanding common share without any action on the part of the shareholder. The share consolidation reduces the number of common shares issued and outstanding from 63,994,606 to 6,399,460. The authorized number of common shares will be reduced by the same -for-ten ratio from 600 million to 60 million.
Public Offering
On March 18, 2022, the Company closed a public offering of 20,000,000 common shares and prefunded warrants to purchase common shares at a price of $0.50 per common share (the “Offering”). The gross proceeds to the Company were approximately $10.0 million, before deducting underwriting discounts and commissions and other estimated expenses payable by the Company. In addition, the Company granted the underwriters a 45-day option to purchase an additional 15% of common shares at the public offering price to cover over-allotments, if any (the “Over-allotment Option”). On March 22, 2022, the underwriter of the Offering had exercised its Over-allotment Option to purchase an additional 2,880,000 common shares at a price of $0.50 per common share. Total gross proceeds to the Company from the Offering, including the proceeds received from the prior closing and the exercise of the Over-allotment Option, were approximately $11.4 million, before deducting underwriting discounts, commissions, and other offering expenses payable by the Company.
NASDAQ Notice
On April 28, 2022 and May 18, 2022, the Company received notification letters (the “Notice”) from NASDAQ advising the Company that for 30 consecutive business days preceding the date of the Notice, the bid price of the Company’s common shares had closed below the $1.00 per share minimum required for continued listing on The NASDAQ Capital Market pursuant to the Minimum Bid Price Rule. The Company was provided until November 14, 2022 to regain compliance with the Minimum Bid Price Rule.
Incorporation of New Entity
On May 19, 2022, the Company formed a wholly-owned subsidiary, EPakia Inc. (“EPakia”), under the laws of the State of Delaware. Based in the Mid-Atlantic region of the United States, EPakia will be primarily focused on developing biodegradable packaging business in the United States and the international markets.
F-36
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