Note 1 - Organization and Nature of Business

Tantech Holdings Ltd (“Tantech BVI” or “the Company”) is a holding company established under the laws of the British Virgin Islands on November 9, 2010. Tantech BVI, through its subsidiaries (together as the “Group”) engages in research, development, production and distribution of various products made from bamboo, manufacture and selling electric and non-electric vehicles, as well as investment in mining exploration.

As of June 30, 2024, details of the subsidiaries of the Group and their principal business activities are set out below:

(i) On January 31, 2024, Zhejiang Shangchi New Energy Automobile Co., Ltd (“Zhejiang Shangchi”) changed its name to Zhejiang Shangnilai Technology Co., Ltd (“Shangnilai”).

Note 2 - Summary of Significant Accounting Policies

Basis of presentation

Principal of Consolidation

Non-controlling interest

Use of Estimates

Fair Value of Financial Instruments 

Note 3 - Divestitures

On March 16, 2024, the Group signed a share transfer agreement with a third party to sell its 100% equity interest in Zhejiang Tantech Bamboo Charcoal Co., Ltd. (“Tantech Charcoal”) for a consideration of $247,688 (RMB1.8 million). For the six months ended June 30, 2024, the Group recorded a gain of $1,005,593 resulted from the disposition of Tantech Charcoal. The disposition is not considered a strategic shift to the Group’s business nor have a major effect on the Group’s operation and financial results; therefore, no discontinued operations were presented.

Note 4 - Accounts Receivable, net

Accounts receivable consisted of the following: 

The movement of allowance for credit losses are as follows: 

Note 5 – Inventory, net

Inventory consisted of the following:

For the six months ended June 30, 2024 and 2023, the Group recorded inventory markdown in the amounts of $nil and $53,275, respectively.

Note 6 – Advances to Suppliers, net

Advances to suppliers consisted of the following:

The movement of allowance for credit losses are as follows:

Note 7 - Financing Receivable, net

Starting from June 2022, the Group provided factoring financing service. The financing receivable is secured by pledged accounts receivable with stated-owned entities and reputable companies, which has carrying value of $43,805,011 and is in excess of the financing provided. The term of the financing receivables is generally within 12 months with annual interest of 6.5%, and extended more 12 months with annual interest of 4.8%. The interest and principal of financing are due upon maturity. The principal and interest receivable of the financing amounted to $40,249,339 and $4,356,682 as of June 30, 2024, respectively.  For the six months ended June 30, 2024 and 2023, the Group recognized net financing interest income of $860,149 and $1,206,998, respectively.

Financing receivable consisted of the following: 

The movement of allowance for credit losses are as follows: 

Note 8 - Leases

The Group has several operating leases for factory facilities and offices. The Group’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The rental expense for the six months ended June 30, 2024 and 2023 was $265,301 and $154,050, respectively. 

Supplemental balance sheet information related to operating leases was as follows:

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of as of June 30, 2024:

The following is a schedule of maturities of lease liabilities as of June 30, 2024:

Note 9 - Short-term Bank Loans

The Group’s short-term bank loans consist of the following:

On December 22, 2022, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $2,212,673 (RMB16,079,936) with one year term at a fixed annual interest rate of 4.35% for its work capital purpose. The loan was renewed upon maturity. The loan was collateralized by building and land use right of Zhejiang Tantech Bamboo Technology Co., Ltd. (“Tantech Bamboo”, a subsidiary disposal in December 2023). Zhengyu Wang and his wife, Yefang Zhang pledged personal property as collateral to secure the loan. 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 Group, his wife, Yefang Zhang, and his relative, Aihong Wang. The loan was disposed through the disposition of Tantech Charcoal on March 16, 2024.

For the six months ended June 30, 2024 and 2023, the interest expense related to bank loans was $45,673 and $72,687, respectively. 

Note 10 – Convertible note

On June 29, 2023, the Company entered into a securities purchase agreement with Streeterville Capital, LLC (“Streeterville”), pursuant to which the Company issued the Investor an unsecured promissory note on June 29, 2023 in the original principal amount of $2,160,000 (the “June 2023 Note”), convertible into common shares of the Company, for $2,000,000 in gross proceeds. The transaction contemplated by the Purchase Agreement closed on June 29, 2023. The June 2023 Note bears interest at a rate of 7% per annum compounding daily. Pursuant to the convertible note agreement, the conversion price is 80% the lower of: (i) the closing price on the trading day immediately preceding the date the redemption conversion price is measured; or (ii) the average closing price of the common shares for the five trading days immediately preceding the date the redemption conversion price is measured, but not lower than $1.2 (the “Floor Price”). All outstanding principal and accrued interest on the Note will become due and payable twelve months after the purchase price of the Note is delivered by Purchaser to the Company (the “Purchase Price Date”). The Note includes an original issue discount of $140,000 along with $20,000 for Streeterville’s fees, costs and other transaction expenses incurred in connection with the purchase and sale of the Note. The Company may prepay all or a portion of the Note at any time by paying 105% of the outstanding balance elected for pre-payment.

The Company has elected to recognize the June 2023 Note at fair value and therefore there was no further evaluation of embedded features for bifurcation. The Group engaged third party valuation firm to perform the valuation of convertible note. The fair value of the convertible note is calculated using the Scenario-based Discounted Cash Flows with Monte Carlo Simulation Model (the "Monte Carlo Model”).

For the year ended December 31, 2023, the June 2023 Note were partially converted into 339,183 common shares of the Company. The fair value immediately prior to conversion was assessed at $438,000. The fair value was $1,727,694 as of December 31, 2023. For the six months ended June 30, 2024, the June 2023 Note further converted into 796,666 common shares of the Company. The fair value immediately prior to conversion was assessed at $909,000. The fair value of was $1,209,466 as of June 30, 2024. For the six months ended June 30, 2024 and 2023, the Company recognized a loss of change in fair value of convertible note of $66,259 and $3,010, respectively. 

Due to the significant drop in the Company’s share price, Streeterville and the Company reached into a consensus, pursuant to which, the Streetrville was entitle to a compensation of $610,227 as of June 30, 2024, which was considered as an addition to the outstanding balance of the June 2023 Note.

Subsequently on September 5, 2024, the Company entered into an exchange agreement (the “Exchange Agreement”) with Streeterville, pursuant to which the Company issued a promissory note (the “September 2024 Exchange Note”) in exchange for the cancellation of the June 2023 Note. The principal amount of the September 2024 Exchange Note was $1,525,213, consisting of the remaining outstanding balance of the original June 2023 Note of $1,225,213 and an exchange fee of $300,000. The September 2024 Exchange Note bears interest at a rate of 7.0% per year and will have a term of twelve months. The Company may prepay all or a portion of the September 2024 Exchange Note at any time by paying 105% of the outstanding balance elected for prepayment. Beginning on October 1, 2024, Streeterville has the right to redeem the September 2024 Exchange Note at any time, subject to a maximum monthly redemption amount of $300,000. Upon receipt of a redemption notice, the Group is required to pay the applicable redemption amount in cash to Lender within three (3) trading days of receipt of the notice. If the Company has not paid by a minimum monthly redemption amount of $150,000, it is required to pay in cash by the fifth day of the following month the difference between the minimum monthly redemption amount and the amount actually repaid in such month, or the outstanding balance will automatically increase by 0.5% as of such fifth day. The Streeterville shall have the right to increase the balance of the September 2024 Exchange Note by 10% for a major trigger event and 5% for a minor trigger event as defined in the Exchange Agreement, with an aggregate of 25% as the maximum increase in the outstanding balance. In addition, the September 2024 Exchange Note provides that upon occurrence of an event of default, the interest rate shall accrue on the outstanding balance at the rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. From September to November 2024, the Company have repaid cash of $1,010,000 to Streeterville, subsequently.

Note 11 - Related Party Balances and Transactions

The relationship of related parties is summarized as follow:

(i) Effective on December 19, 2024, Mr. Zhengyu Wang resigned as Chairman of the Board of Directors and Ms. Yefang Zhang serve as Chairwoman.  Mr. Zhengyu Wang remains a controlling shareholder of the Group after his resignation. 

Due to related parties

The balances due to related parties were as follows:

As of June 30, 2024 and December 31, 2023, the Group borrowed $833,555 and $756,965 from Mr. Zhengyu Wang and his affiliates for working capital purpose.

Mr. Wangfeng Yan, and his affiliates, also made advances to the Group. The balance due to Mr. Wangfeng Yan and his affiliates was $147,572 and $146,502 as of June 30, 2024 and December 31, 2023, respectively.

All balances of due to the related parties were unsecured, interest-free and due upon demand.

Lease arrangement with related party

On July 13, 2021, Tantech Bamboo signed a lease agreement with Zhejiang Farmmi Food Co., Ltd. (“Farmmi Food”) to lease part of its production facilities of approximately 1,180 square meters to Farmmi Food for ten years with monthly rent of approximately $2,200 (RMB15,338). Farmmi Food is controlled by Ms. Yefang Zhang who is the director of the Group. For the six months ended June 30, 2024 and 2023, the Group recorded rent income of $nil and $12,183 from Farmmi Food, respectively.

On July 13, 2021, Tantech Bamboo signed a lease agreement with Zhejiang Farmmi Biotechnology Co., Ltd. (“Farmmi Biotechnology”) to lease part of its production facilities of approximately 1,914 square meters to Farmmi Biotechnology for ten years with monthly rent of approximately $5,500 (RMB38,280). Farmmi Biotechnology is controlled by Ms. Yefang Zhang who is the director of the Group. For the six months ended June 30, 2024 and 2023, the Group recorded rent income of $nil and $29,520 from Farmmi Biotechnology, respectively.

Guaranty provided by related parties

Mr. Zhengyu Wang, Ms. Yefang Zhang and Ms. Aihong Wang, Forasen Group and LJC provided guarantees to the Group’s bank loans (See Note 7).

Note 12 - Commitments and Contingencies

Contingencies

On March 23, 2021, Mr. Hengwei Chen filed a lawsuit against Shangchi Automobile and the Group for a debt dispute of approximately $1.6 million (RMB11.35 million). Mr. Chen was the former general manager of Shangchi Automobile before the Group acquired Shangchi Automobile in 2017. On December 15, 2021, the Court ordered Shangchi Automobile to pay Mr. Hengwei Chen approximately $1.2 million (RMB8.95 million). The Group filed an appeal on January 4, 2022, but the Court made the final judgement to maintain the original ruling on June 29, 2022. The Group recorded the disputed amount and further accrued interest of $0.8 million (RMB5.6 million) in the accrued liabilities based on the best estimate of the management as of June 30, 2024. Restricted cash of $28,979 was judicially frozen as of June 30, 2024. As of the date of this filing, the Group has paid $22,548 (RMB163,862).

Note 13 - Stockholders’ Equity

Common shares

On February 24, 2022, the Company’s Board approved a share consolidation of the Company’s common shares at the ratio of one-for-ten reverse split with the effective date of February 25, 2022.

On October 28, 2022, the Company’s Board approved a share consolidation of the Company’s common shares at the ratio of one-for-twenty-four reverse split with the effective date of November 9, 2022.

On May 26, 2023, the Company’s Board approved to change the authorized number of common shares from 2.5 million to 500 million. Furthermore, on April 23, 2024, the Company’s Board approved to issue an unlimited number of common shares of no par value each.

Private placements

On February 21, 2023, the Company entered into a securities purchase agreement with nine individual purchasers, pursuant to which the Company agreed to sell an aggregate of 1,000,000 common shares at a price of $2.80 per share, the net proceeds of $2,779,325 after deducting related expenses. The transaction was closed on March 22, 2023.

On June 26, 2023, the Company entered into a securities purchase agreement with six individual purchasers, pursuant to which the Company agreed to sell an aggregate of 1,240,000 common shares at a price of $2.5 per share, the net proceeds of $3,055,000 after deducting related expenses. The transaction was closed on June 30, 2023.

On April 22, 2024, the Company entered into a private placement (the “April 2024 Private Placement”) and issued an aggregate of 4,200,000 units and pre-funded units (collectively, the “Units”) at a purchase price of $0.50 per unit (less $0.0001 per pre-funded unit). Each Unit consists of (i) one Common Share of the Company (or one pre-funded warrant to purchase one Common Share (the “Pre-Funded Warrant”)), (ii) two Series A warrants each to purchase one Common Shares (the “Series A Warrants”) and (iii) one Series B warrant to purchase such amount of Common Shares as determined on the Reset Date (defined below) and in accordance with the terms therein (the “Series B Warrant” and together with the Series A Warrant, the “April 2024 Warrants”). The aggregate gross proceeds amounted to $2.1 million.

Note 14 - Non-controlling Interests

A reconciliation of non-controlling interest as of June 30, 2024 and December 31, 2023 is as follows:

As of June 30, 2024 and December 31, 2023, the non-controlling interest balances represented the noncontrolling shareholder’s 30% equity interests in Shangchi Automobile and its subsidiary Shenzhen Yimao.

Note 15 - Segment Information

All of the Group’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:

The Group uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Group’s reportable segments.  Effective in fiscal 2023, the Group combined biodegradable packaging business into consumer products segment. This business segment change is consistent with internal management structure and reporting changes effective for fiscal 2023. Prior periods were revised to reflect retrospective application of this segment realignment. As a result, the Group 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 well as biodegradable packaging business. The EV segment manufactures and sell electric vehicles. Management, including the chief operating decision maker, reviews operation results of consumer products and EV segments separately. 

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 six months ended June 30, 2024 and 2023, respectively.