Tantech Holdings Ltd.
Annual Report 2019

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ 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, 2019 ☐ ☐ 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 __________ OR 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 Common shares Trading Symbol TANH Name of each exchange on which registered 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: 28,853,242 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: US GAAP ☒ 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 ☒ PART I ITEM 1. ITEM 2. ITEM 3. ITEM 4. ITEM 4A. ITEM 5. ITEM 6. ITEM 7. ITEM 8. ITEM 9. ITEM 10. ITEM 11. ITEM 12. PART II ITEM 13. ITEM 14. ITEM 15. ITEM 15T. ITEM 16. ITEM 16A. ITEM 16B. ITEM 16C. ITEM 16D. ITEM 16E. ITEM 16F. ITEM 16G. ITEM 16H. PART III ITEM 17. ITEM 18. ITEM 19. TABLE OF CONTENTS IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS OFFER STATISTICS AND EXPECTED TIMETABLE KEY INFORMATION INFORMATION ON THE COMPANY UNRESOLVED STAFF COMMENTS OPERATING AND FINANCIAL REVIEW AND PROSPECTS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS FINANCIAL INFORMATION THE OFFER AND LISTING. ADDITIONAL INFORMATION. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. CONTROLS AND PROCEDURES. CONTROLS AND PROCEDURES. [RESERVED] AUDIT COMMITTEE FINANCIAL EXPERT CODE OF ETHICS. PRINCIPAL ACCOUNTANT FEES AND SERVICES. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. CORPORATE GOVERNANCE. MINE SAFETY DISCLOSURE FINANCIAL STATEMENTS. FINANCIAL STATEMENTS. EXHIBITS. 2 3 3 3 3 32 72 73 93 105 108 108 109 116 116 117 117 117 117 120 120 120 120 120 121 121 121 121 121 122 122 122 122 Special Note Regarding Forward-Looking Statements This annual report contains forward-looking statements. All statements contained in this annual report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long- term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this annual report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We are under no duty to update any of these forward-looking statements after the date of this annual report or to conform these statements to actual results or revised expectations. PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable for annual reports on Form 20-F. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable for annual reports on Form 20-F. ITEM 3. KEY INFORMATION A. Selected financial data. In the table below, we provide you with historical selected financial data for the fiscal years ended December 31, 2019, 2018, 2017, 2016 and 2015. The information is derived from our consolidated financial statements included elsewhere in this annual report and previous annual report filed. Historical results are not necessarily indicative of the results that may be expected for any future period. When you read this historical selected financial data, it is important that you read it along with the historical financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our audited consolidated financial statements are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States of America, or U.S. GAAP. 3 (All amounts in thousands of U.S. dollars) Statement of operations data: Revenues Gross profit Operating expenses Income from operations Income from continuing operations before income taxes Provision for Income taxes Net income from continuing operations Net income (loss) from discontinued operations Net income Net income (loss) attributable to the non-controlling interest Net income attributable to common stockholders Earnings from continuing operations per share Earnings (loss) from discontinued operations per share Balance sheet data: Working capital Current assets Total assets Current liabilities Total liabilities Total equity $ $ For the year ended December 31, 2019 2018 2017 2016 49,230 $ 5,977 14,886 (8,909) (9,295) 364 (9,659) (299) (9,958) (3,602) (6,356) $ (0.21) (0.01) 29,561 $ 8,029 5,679 2,350 2,028 1,031 997 83 1,080 (897) 1,977 $ 0.07 0.00 42,298 $ 10,556 5,984 4,572 4,476 1,528 2,948 65 3,013 (754) 3,767 $ 0.15 0.00 39,902 13,023 4,372 8,651 8,333 1,367 6,966 (2,358) 4,608 308 4,299 0.19 (0.10) 2019 2018 As of December 31, 2017 2016 2015 48,159 $ 70,314 134,194 22,155 24,208 109,986 $ 62,456 $ 89,245 138,487 26,789 28,875 109,612 $ 49,560 $ 63,659 94,303 14,097 14,097 80,206 $ 49,697 62,683 87,075 13,986 13,986 73,089 $ $ 49,028 68,162 115,451 19,134 20,919 94,532 4 EXCHANGE RATE INFORMATION Our financial information is presented in U.S. dollars. Our functional currency is Renminbi (“RMB”), the currency of the PRC. Transactions denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China at the dates of the transactions. Exchange gains and losses resulting from transactions denominated in a currency other than the RMB are included in statements of operations as foreign currency transaction gains or losses. Our financial statements have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 52, “Foreign Currency Translation”, which was subsequently codified within 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 as to assets and liabilities and average exchange rates as to 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 (loss) in shareholders’ equity. The relevant exchange rates are listed below: US$:RMB exchange rate December 31, 2019 December 31, 2018 December 31, 2017 Period End $ $ Average 0.1436 Period End $ $ 0.1448 Average 0.1513 Period End $ $ 0.1454 Average 0.1537 0.1478 We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. We do not currently engage in currency hedging transactions. 5 The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. Period 2015 2016 2017 2018 2019 2020 January February March April May June (until June 22, 2020) Period-End Midpoint of Buy and Sell Prices for U.S. Dollar per RMB High Average Low 6.4917 6.9448 6.5074 6.8776 6.9618 6.9335 6.9909 7.0896 7.0648 7.1363 7.0699 6.2288 6.6441 6.7578 6.6163 6.9081 6.9228 6.9946 7.0245 7.0703 7.1023 7.0643 6.4917 7.0672 6.9535 6.9720 7.1786 6.9718 7.0383 7.0974 7.0942 7.1591 7.1297 6.0933 6.4494 6.4686 6.2660 6.6822 6.8587 6.9934 6.9320 7.0351 7.0612 7.0643 As of June 22, 2020, the exchange rate is RMB 7.0699 to $1.00. Over the past several years, the Renminbi has moved from a period of strengthening against the dollar to a period of recent weakening against the dollar. Our primary sales outside China occur in Japan, South Korea, Taiwan, the Middle East and Europe, but all such sales outside China are made in U.S. dollars. B. Capitalization and indebtedness. Not applicable for annual reports on Form 20-F. C. Reasons for the offer and use of proceeds. Not applicable for annual reports on Form 20-F. D. Risk factors. Risks Related to Our Business and Industry We face risks related to health epidemics that could impact our sales and operating results. Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the recent outbreak of respiratory illness caused by a novel coronavirus first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, and other adverse public health developments, particularly in China, could have a material and adverse effect on our business operations. These could include disruptions or restrictions on our ability to resume the general shipping agency services, as well as temporary closures of our facilities and ports or the facilities of our customers and third-party service providers. Any disruption or delay of our customers or third-party service providers would likely impact our operating results and the ability of the Company to continue as a going concern. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of China and many other countries, resulting in an economic downturn that could affect demand for our services and significantly impact our operating results. The coronavirus disease 2019 (COVID-19) has had a significant impact on our operations since January 2020 and could materially adversely affect our business and financial results for the remaining months of the 2020 fiscal year. Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, logistics service providers or distributors as a result of the impact from the COVID-19. This damage or disruption could result from events or factors that are impossible to predict or are beyond our control, such as raw material scarcity, pandemics, government shutdowns, disruptions in logistics, supplier capacity constraints, adverse weather conditions, natural disasters, fire, terrorism or other events. In December 2019, COVID-19 emerged in Wuhan, China. In compliance with the government mandates, the Company temporarily closed and its production operations were halted after the Chinese New Year holiday until late February 2020. After that, it requested that all employees either work remotely or work at premises in shifts for limited periods of time. It only fully resumed operations since March 23, 2020. The COVID-19 outbreak has had a significant adverse impact on our business and operations during the first quarter of 2020. While the spread of the disease has gradually been under control in China, COVID- 19 could adversely affect our business and financial results for the remaining months of the year 2020. Chinese economic downturn or growth slowdown may harm our business. Since 2014, Chinese economic growth has been slowing down from double-digit GDP speed. The situation has impacted many industries and economic segments in China, such as restaurants, the hospitality industry, auto industry, and discretionary consumer spending. Our business operations in China mainly rely on consumer cash availability and spending, consumer demand for our products and consumer confidence, which are impacted by an economic downturn. The recent rapid spread of COVID-19, or fear of such an event, can have a material adverse effect on the demand for our products and therefore have a material adverse effect on our business and results of operations. Office closings, travel restrictions and required quarantines implemented in China has caused significant slowdown of China’s economic growth and could further adversely affect China’s economy resulting in an economic downturn. If China’s economy continues to slow down or go into recession, our financial and operation results could be materially and adversely affected as a result of slower consumer spending on our products or below par performance of the consumer discretionary goods industries. A weakening of the Chinese economy (and in particular consumer spending) could hurt demand for our products. Our Charcoal Doctor products are generally considered “household use and decorative items,” meaning that these products are used for beautification and decoration purposes in addition to purification purposes. For example, consumers tend to purchase charcoal products for their value in absorbing odors and tend to purchase some of our bamboo charcoal products for these purposes and also for the perceived attractiveness of our products. We seek to design bamboo charcoal products that our customers want to display throughout their homes. 6 As such, we have relied on consumer spending to drive sales in this product line. In the past, sales have been increased as Chinese consumers have had more disposable income. Since 2010, China’s GDP growth rate has slowed from more than 10% to less than 7%. If China’s economy continues to slow, or if customer spending for household items decreases, demand for our charcoal products may be reduced, which would negatively affect sales of our Charcoal Doctor products. If we are unable to develop products that meet the demands of our customers, sales of our products could decrease. As a company that focuses primarily on consumer products in our Charcoal Doctor line of products, and to a lesser extent electric vehicles and mining, we rely on our ability to predict the needs and desires of customers several months before fulfilling orders for stores. If we are unable to accurately forecast our customers’ preferences, we may lose market share to our competitors. Our two largest competitors are significantly larger than our company. Although our company is one of the largest providers of bamboo charcoal-based products of their kind, we compete with companies that make products that have equivalent function but that are not bamboo charcoal-based, and some of these competitors are much larger than we are. Charcoal Doctor’s two largest such competitors are Guangzhou Blue Moon Industry Co., Ltd, which makes Blue Moon branded products (“Blue Moon”), and Shanghai SC Johnson Wax Co., Ltd, which makes Mr. Muscle branded products (“Mr. Muscle”). Blue Moon and Mr. Muscle are substantially larger than Charcoal Doctor. We believe that they have a much greater customer recognition level than Charcoal Doctor. Charcoal Doctor has not historically spent substantial resources on television or print advertising. As a result, we expect that such competitors are likely to continue efforts to improve their brand recognition, while we may be unable to do so without changing our business plan to increase spending on such advertisements. As a charcoal-based provider of household products, we are subject to supply risks that some of our competitors do not face. Some of our largest competitors in the provision of household products such as our bamboo vinegar products rely on chemical solutions, rather than charcoal and derivatives of charcoal, to create their products. As a result, we do not believe they are subject to business risk in the event bamboo or wood charcoal supplies are compromised. On the other hand, if we were unable to procure bamboo or wood charcoal products or unable to procure them on attractive terms, our product line could become substantially more expensive or our growth rate could be limited, resulting in us becoming less competitive than others in our industry. In summer 2012, we faced a supply shortage based on local government initiatives to reduce the risk of fire caused by charcoal. As a result, the local government in Daxing Anlin, where one of our main suppliers of wood-based OEM BBQ charcoal is located, restricted the production of charcoal during June, July and August 2012. At that time, our stock of OEM BBQ charcoal was insufficient to avoid demand pressures. As a result, our revenues declined during this period. If local governments similarly reduce production of charcoal in the future, we could be negatively impacted by the lack of supply, either as to our ability to obtain suitable product or by our ability to obtain such product at a reasonable price. We lack product and business diversification. Accordingly, our future revenues and earnings are more susceptible to fluctuations than a more diversified company. Our primary business activities focus on bamboo-related products. Because our focus is limited in this way, any risk affecting the bamboo industry or consumers’ desire for bamboo- and bamboo charcoal-related products could disproportionately affect our business. Though we are broadening our business focus to electric vehicles and an investment in mining, our lack of product and business diversification at this time could inhibit the opportunities for growth of our business, revenues and profits. 7 Our suppliers’ bamboo is subject to risks related to fire, flooding, disease and pests. While bamboo is considered a relatively hardy plant, it remains a plant that can be burned in fires or damaged by prolonged flooding or exposure to diseases, fungus and pests. If our suppliers’ bamboo resources were affected by such natural risks, it could be more difficult or expensive to source the bamboo charcoal for our products. Increases in bamboo charcoal costs may negatively affect our operating results. While bamboo is a renewable resource (and thus bamboo products like bamboo charcoal may be considered renewable), the price of raw materials may be inelastic when we wish to purchase supplies. While we have attempted to mitigate this risk by taking advantage of decreases in other expenses (due to better transportation infrastructure reducing the cost of bringing materials to our company and from our company to our customers) and improving efficiency, we cannot guarantee that we will be able to control our material expenses. In addition, as we are competing based upon low price, we will risk losing customers by increasing our selling prices. To the extent our expenses increase beyond the price we can charge our customers, our operating results could be harmed. We face competition from smaller competitors that may be able to provide similar charcoal briquette products at lower prices. Our charcoal briquette products are valued primarily for their ability to burn and create heat. As result, our competitors in this line of business do not require the same high technology as our competitors for our Charcoal Doctor products. For this reason, our charcoal briquette business is subject to competition from a variety of small producers, which may be able to provide similar product for a much lower price. To the extent our customers discriminate based on price, we may find that we lose market share to such producers. Moreover, we may be required to reduce our price in order to maintain or slow loss of market share for such products. As charcoal briquette products make up a substantial percentage of revenues, even at a lower profit margin, the reduction of sales of such products could hurt our company. Our future growth of our electric vehicle (EV) segment is dependent upon consumers’ willingness to adopt EVs. Our growth is highly dependent upon the adoption by consumers of, and we are subject to a risk of any reduced demand for, alternative fuel vehicles in general and electric vehicles (EVs) in particular. The market for alternative fuel vehicles (including EVs) is relatively new and rapidly evolving, characterized by rapidly changing technologies, price competition, evolving government regulation and industry standards both domestically and abroad, frequent new vehicle announcements and changing consumer demands and behaviors. If the market for EVs in China does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed. Our high concentration of EVs sales to relatively few customers may result in significant impact on our liquidity, business, results of operations and financial condition. For the years ended December 31, 2019, 2018 and 2017, major customers (above 10% of the total revenue), in the aggregate, accounted for 0% (No EV sales in 2019), 100% and 88%, respectively, of EV sales for Shangchi Automobile Co., Ltd. (“Shangchi Automobile”), formerly known as Suzhou E- Motors Co., Ltd. (“Suzhou E-Motors”). Mainly due to the concentration of sales to relatively few customers, loss of one or more of these customers will have relatively high impact on our operational results. We expect this trend to continue for the foreseeable future. In the event there is an unfavorable change in our business relationship with our significant customers, it could have a material adverse effect on our business and financial results. Our specialty-used EVs Models are highly dependent on the approvals from Ministry of Industry and Information Technology of the People's Republic China (MIIT). A failure to obtain approval quickly or at all might cause significant delays in production and sales, results of operations and financial conditions. Each year, we submit certain EV models’ application to the Ministry of Industry and Information Technology of the People's Republic China (MITT). The MIIT’s approval of our application is the key for us to produce and sell any related EV products. Any delays or rejections in our applications will have significant negative impact on our Shangchi Automobile’s operations and financial conditions. 8 Our EVs make use of lithium-ion battery cells, which have the potential to catch fire or vent smoke and flame. This may lead to additional concerns about batteries used in automotive applications. The battery packs in our EV products make use of lithium-ion cells. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. Extremely rare incidents of laptop computers, cell phones and EV battery packs catching fire have focused consumer attention on the safety of these lithium-ion cells. These events have raised concerns about batteries used in automotive applications. To address these questions and concerns, a number of battery cell manufacturers are pursuing alternative lithium-ion battery cell chemistries to improve safety. We may have to recall our vehicles or participate in a recall of a vehicle that contains our battery packs, or redesign our battery packs, which would be time consuming and expensive. Also, negative public perceptions regarding the suitability of lithium- ion cells for automotive applications or any future incident involving lithium-ion cells such as a vehicle or other fire, even if such incident does not involve us, could seriously harm our business. Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines. Our various business operations generate noise, waste water, gaseous byproduct and other industrial waste. We are required to comply with all national and local regulations regarding the protection of the environment. We are in compliance with current environmental protection requirements and have all necessary environmental permits to conduct our business. However, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial. Additionally, if we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control the use of, or to adequately restrict the unauthorized discharge of, hazardous substances could subject us to potentially significant monetary damages and fines or suspensions to our business operations. Certain laws, ordinances and regulations could limit our ability to develop, use, or sell our products. Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our EV Products. Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we do not currently anticipate. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced EV products, which could result in the loss of competitiveness of our vehicles, decreased revenue and a loss of market share to competitors. If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position. We may be unable to keep up with changes in EV technology, and we may suffer a resulting decline in our competitive position. Any failure to keep up with advances in EV technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes in EV technology. As technologies change, we plan to upgrade or adapt the vehicles and introduce new models in order to continue to provide vehicles with the latest technology, in particular battery cell technology. However, our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our vehicles. For example, we do not manufacture battery cells, which makes us dependent upon other suppliers of battery cell technology for our battery packs. 9 Changes to the Chinese government’s subsidy/rebate support policies and further delays in subsidy/rebate payments may have further negative impacts on our EV segment. The Company sells electric vehicles in China and is eligible for a government manufacturing rebate on each qualifying electric vehicle sold. The Chinese central government subsidy support policies, or rebate policies, have been changing every year. The policy changes have caused certain uncertainties and negative impacts on our EV operations and may cause further negative impacts on our EV segment. For example, the Chinese central government subsidy support policies effective as of January 1, 2017, called for a 20% of reduction in central government subsidies per electric car in 2017 from its 2016 level and the total local government subsidy matched to be not more than 50% of the total central government subsidies per electric car. The reduction of subsidies from both the central government and local governments inevitably increased the costs to the consumers to purchase our EVs, which caused temporary pressure for us to expand our EV sales. The change in subsidy payment methods in 2017 from paid-in-advance to paid post-sale and further delay in releasing subsidy payments for the EVs manufactured and sold in the prior years also caused the potential delay in collection of the accounts receivable from our business partners, which temporarily increased the pressure on our working capital for continuing operations. Since 2018, the rebate policies required all the EVs manufactured since 2016 to install the national platform so the government could monitor the mileage and other information. Accordingly, we installed the platform on our EVs manufactured since 2016. Since 2019, the rebate policies required the battery capacity attenuation can’t exceed 20%. Accordingly, we plan to inspect the batteries of our EVs. In addition, We decided to pause EV productions as our costs would not be covered when we are not able to receive the government rebates to EV manufacturers timely because of the much stricter new government rebate policy issued in 2019. The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects. We do not own 100% of our electric vehicle subsidiary, and we are a minority investor in Libo Haokun and Fuquan Chengwang, our recent mining investments. We only own 70% of Shangchi Automobile. Zhangjiagang Jinke Chuangtou Co., Ltd. (“Jinke”) holds the remaining 30% equity interest in Shangchi Automobile and has significant influence on its operation. The potential for differences between us and Jinke may result in ineffective operation of Shangchi Automobile and our operating results would be materially negatively affected. Further, we own an indirect 18% interest in Libo Haokun Stone Co., Ltd. (“Libo Haokun”), a marble mining operating company, and Fuquan Chengwang Mining Co., Ltd. (“Fuquan Chengwang”), a basalt mining company. As such, we have an inability to control or significantly influence Libo Haokun’s and Fuquan Chengwang’s management and operations. If we believe that Libo Haokun and Fuquan Chengwang are being managed or operated ineffectively, we have limited options. Outstanding bank loans may reduce our available funds. We have approximately $7.1 million in outstanding bank loans and bank acceptance notes payable as of December 31, 2019. The loans and payables are held at multiple banks, and we used our land and property as the collateral for the debt. While our land and property are worth more than the total loan amount and we also have approximately $12.4 million in cash and approximately $68.2 million of current assets available to pay the debt, there can be no guarantee that we will be able to pay all amounts when due or refinance the amounts on terms that are acceptable to us or at all. If we are unable to make our payments when due or to refinance such amounts, our property could be foreclosed and our business could be negatively affected. While we do not believe they will impact our liquidity, the terms of the debt agreements impose significant operating and financial restrictions on us. These restrictions could also have a negative impact on our business, financial condition and results of operations by significantly limiting or prohibiting us from engaging in certain transactions, including but not limited to: incurring or guaranteeing additional indebtedness; transferring or selling assets currently held by us; and transferring ownership interests in certain of our subsidiaries. The failure to comply with any of these covenants could cause a default under our other debt agreements. Any of these defaults, if not waived, could result in the acceleration of all of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it on favorable terms, if any. If the value of our property decreases, we may not be able to refinance our current debt. All of our current debt is secured by our real and other business property. If the value of our real property decreases, we may find that banks are unwilling to loan money to us secured by our business property. A drop in property value could also prevent us from being able to refinance that loan when it becomes due on acceptable terms or at all. 10 If our expansions into new businesses are not successful, our future results of operations and growth prospects may be materially and adversely affected. On January 27, 2016, we entered into a framework agreement to acquire Suzhou E-Motors which is now known as Shangchi Automobile, a specialty electric vehicles manufacturer. Pursuant to the Call Option Agreement executed on May 2, 2016, Supplemental Agreement I signed on December 22, 2016 and Supplemental Agreement II signed on July 12, 2017, the Company acquired a 70% equity interest of Shangchi Automobile with total cash consideration of RMB 103,200,000 (approximately $15.9 million) and a share consideration of 2,500,000 restricted shares of the Company's common stock. Our 70% equity interest in Shangchi Automobile comprises a 19% equity interest owned directly through Hangzhou Jiyi Investment Management Co., Ltd (“Jiyi”) and a 51% equity interest owned through a series of contractual agreements with the owners of Hangzhou Wangbo Investment Management Co., Ltd (“Wangbo”). Jiyi is 100% owned through Shanghai Jiamu Investment Management Co., Ltd (“Jiamu”), which is, in turn, wholly owned by Euroasia International Capital (“Euroasia”), a 100% owned subsidiary of 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, the “VIE Agreements”). Pursuant to the VIE Agreements, Jiamu has the exclusive right to provide to 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. 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.” The Company had originally negotiated to acquire 100% of Shangchi Automobile; however, following initial discussions, Shangchi Automobile’s minority shareholder, Jinke, a local government-led venture capital fund, opted to retain its 30% interest. We may face competition from existing leading players in this business. If we cannot successfully address the new challenges and compete effectively against the existing leading players in the new businesses, we may not be able to develop a sufficiently large customer and user base, recover costs incurred for investing in, developing and marketing new businesses, and eventually achieve profitability from these businesses, and our future results of operations and growth prospects may be materially and adversely affected. We face risks and uncertainties associated with our recent investment in mining and processing operations. In January 2018, we made a purchase of an indirect 18% interest in Libo Haokun, a marble mining operating company. In November 2019, we made a purchase of an indirect 18% interest in Fuquan Chengwang, a basalt mining company. Libo Haokun’s and Fuquan Chengwang’s mining and processing operations are subject to a number of operating risks and hazards, some of which are beyond our control. These operating risks and hazards include: (i) unexpected maintenance or technical problems; (ii) periodic interruptions of its mining operations due to inclement or hazardous weather conditions and natural disasters; (iii) industrial accidents; (iv) power or fuel supply interruptions; (v) critical equipment failures; and (vi) unusual or unexpected variations in the quarry and geological or mining conditions, such as instability of the slopes and subsidence of the working areas. These risks and hazards may result in personal injury, damage to, or destruction of, properties or production facilities, environmental damages, business interruptions and damage to Libo Haokun’s and Fuquan Chengwang’s business reputation. In addition, the breakdown of machinery and equipment, difficulties or delays in obtaining replacement machinery and equipment, natural disasters, industrial accidents or other events could temporarily disrupt its operations. Any disruption for a sustained period to the operations of Libo Haokun’s and Fuquan Chengwang’s quarry or supporting infrastructure, or any change to the natural environment surrounding its quarry may have a material adverse effect on our investment in Libo Haokun and Fuquan Chengwang. In addition, Fuquan Chengwang is renewing a government-issued mining permit which expired on May 20, 2019. Previously our investment agreement states that if Fuquan Chengwang is not able to receive the renewed mining permit by June 30, 2020, we are entitled to be repaid the consideration within 30 days, there is uncertainty that the obligator will enforce the agreement. Due to COVID-19 pandemic in early 2020, the permit renewal process has been delayed. Accordingly, we are in the process of negotiating an investment agreement amendment to extend the renewal due date from June 30, 2020 to December 31, 2020. While we expect the permit can be renewed by October 2020, it is possible that Fuquan Chengwang is not able finish the renewal process timely. We may experience increased costs or losses resulting from the hazards and uncertainties associated with mining operations. The exploration for natural resources and the development and production of mining operations are activities that involve a high level of uncertainty. These can be difficult to predict and are often affected by risks and hazards outside of our control. These factors include, but are not limited to: 11 · Industrial accidents, including in connection with the operation of mining transportation equipment and accidents associated with the preparation and ignition of any blasting operations, milling equipment, conveyor systems and transportation of chemicals, explosions or other materials; · Environmental hazards, including discharge of metals, concentrates, pollutants or hazardous chemicals; · Surface or underground fires or floods; · Unexpected geological formations or conditions (whether in mineral or gaseous form); · Ground and water conditions; · Fall-of-ground accidents in underground operations; · Seismic activity; and · Other natural phenomena, such as lightning, cyclonic or tropical storms, floods or other inclement weather conditions. The occurrence of one or more of these events in connection with Libo Haokun’s and Fuquan Chengwang’s exploration activities and development and production of mining operations may result in the death of, or personal injury to, its employees, other personnel or third parties, the loss of mining equipment, damage to or destruction of mineral properties or production facilities, monetary losses, deferral or unanticipated fluctuations in production, environmental damage and potential legal liabilities, all of which may adversely affect Libo Haokun’s, Fuquan Chengwang’s and our reputation, business, prospects, results of operations and financial position. Mining companies are increasingly required to consider and provide benefits to the communities and countries in which they operate, and are subject to extensive environmental, health and safety laws and regulations. As a result of public concern about the real or perceived detrimental effects of economic globalization and global climate impacts, businesses generally and corporations in natural resources industries, such as Libo Haokun and Fuquan Chengwang, in particular, face increasing public scrutiny of their activities. These businesses are under pressure to demonstrate that, as they seek to generate satisfactory returns on investment to shareholders, other stakeholders, including employees, governments, communities surrounding operations and the countries in which they operate, benefit and will continue to benefit from their commercial activities. Such pressures tend to be particularly focused on companies whose activities are perceived to have a high impact on their social and physical environment. The potential consequences of these pressures include reputational damage, legal suits, increasing social investment obligations and pressure to increase taxes and royalties payable to governments and communities. In addition, Libo Haokun’s and Fuquan Chengwang’s ability to successfully obtain key permits and approvals to explore for, develop and operate mines and to successfully operate in communities in China will likely depend on its ability to develop, operate and close mines in a manner that is consistent with the creation of social and economic benefits in the surrounding communities, which may or may not be required by law. Libo Haokun’s and Fuquan Chengwang’s ability to obtain permits and approvals and to successfully operate in particular communities may be adversely impacted by real or perceived detrimental events associated with its activities or those of other mining companies affecting the environment, human health and safety of communities in which we operate. Delays in obtaining or failure to obtain government permits and approvals may adversely affect Libo Haokun’s, Fuquan Chengwang’s and our operations, including Libo Haokun’s and Fuquan Chengwang’s ability to explore or develop properties, commence production or continue operations. Key permits and approvals may be revoked or suspended or may be varied in a manner that adversely affects Libo Haokun’s and Fuquan Chengwang’s operations, including our ability to explore or develop properties, commence production or continue operations. Libo Haokun’s and Fuquan Chengwang’s exploration, development, mining and processing operations are subject to extensive laws and regulations governing worker health and safety and land use and the protection of the environment, which generally apply to air and water quality, protection of endangered, protected or other specified species, hazardous waste management and reclamation. Libo Haokun and Fuquan Chengwang have made, and expects to make in the future, significant expenditures to comply with such laws and regulations. Compliance with these laws and regulations imposes substantial costs and burdens, and can cause delays in obtaining, or failure to obtain, government permits and approvals which may adversely impact Libo Haokun’s and Fuquan Chengwang’s closure processes and operations. 12 Future changes in applicable laws, regulations, permits and approvals or changes in their enforcement or regulatory interpretation could substantially increase costs to achieve compliance, lead to the revocation of existing or future exploration or mining rights or otherwise have an adverse impact on Libo Haokun’s, Fuquan Chengwang’s and our results of operations and financial position. Increased global attention or regulation on consumption of water by industrial activities, as well as water quality discharge, and on restricting or prohibiting the use of hazardous substances in processing activities could similarly have an adverse impact on Libo Haokun’s and Fuquan Chengwang’s results of operations and financial position due to increased compliance and input costs. Libo Haokun’s and Fuquan Chengwang’s business requires substantial capital investment and it may be unable to raise additional funding on favorable terms. The construction and operation of potential future mining projects and various exploration projects will require significant funding. Libo Haokun’s and Fuquan Chengwang’s operating cash flow and other sources of funding may become insufficient to meet all of these requirements, depending on the timing and costs of development of these and other projects. As a result, new sources of capital may be needed to meet the funding requirements of these investments, fund its ongoing business activities and pay dividends. Libo Haokun’s and Fuquan Chengwang’s ability to raise and service significant new sources of capital will be a function of macroeconomic conditions, future marble prices, its operational performance and its current cash flow and debt position, among other factors. In the event of lower marble prices, unanticipated operating or financial challenges, or a further dislocation in the financial markets as experienced in recent years, Libo Haokun’s and Fuquan Chengwang’s ability to pursue new business opportunities, invest in existing and new projects, fund its ongoing operations, retire or service all of our outstanding debt and pay dividends could be significantly constrained, all of which could have an adverse effect on our minority investment. Competition from other natural resource companies may harm Libo Haokun’s and Fuquan Chengwang’s business. Libo Haokun and Fuquan Chengwang compete with other natural resource companies to attract and retain key executives, skilled labor, contractors and other employees. They also compete with other natural resource companies for specialized equipment, components and supplies necessary for exploration and development. They may be unable to continue to attract and retain skilled and experienced employees, or to obtain the services of skilled personnel and contractors or specialized equipment or supplies. We may require additional financing in the future and our operations could be curtailed if we are unable to obtain required additional financing when needed. We may need to obtain additional debt or equity financing to fund future capital expenditures. While we do not anticipate seeking additional financing in the immediate future, any additional equity may result in dilution to the holders of our outstanding shares of capital stock. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that: · · · · limit our ability to pay dividends or require us to seek consent for the payment of dividends; increase our vulnerability to general adverse economic and industry conditions; require us to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund capital expenditures, working capital and other general corporate purposes; and limit our flexibility in planning for, or reacting to, changes in our business and our industry. We cannot guarantee that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. 13 The loss of any of our key customers could reduce our revenues and our profitability. Our key customers are principally third-party distributors and retail stores in the PRC. For the years ended December 31, 2019, six major customers accounted for approximately 19%, 19%, 18%, 17%, 13% and 12% of the Company’s total sales, respectively. There can be no assurance that we will maintain or improve the relationships with these customers, or that we will be able to continue to supply these customers at current levels or at all. Any failure to pay by these customers could have a material negative effect on our company’s business. In addition, having a relatively small number of customers may cause our quarterly results to be inconsistent, depending upon when these customers pay for outstanding invoices. If we cannot maintain long-term relationships with these major customers, the loss of our sales to them could have an adverse effect on our business, financial condition and results of operations. 14 We rely on third-party distributors for a substantial portion of our sales, which could affect our ability to efficiently and profitably distribute and market our products, maintain our existing markets and expand our business into other geographic markets. Sales of our products through distributors constituted approximately 90%, 92% and 76% of our total sales in 2019, 2018 and 2017, respectively. To the extent our distributors are distracted from selling our products or do not expend sufficient efforts in managing and selling our products, our sales will be adversely affected. Our ability to maintain our distribution network and attract additional distributors will depend on a number of factors. Some of these factors include: (i) the level of demand for our brand and products in a particular market; (ii) our ability to maintain current distribution relationships or establish and maintain successful relationships with distributors in new geographic areas. These factors are partially outside our control because consumers ultimately determine what they purchase and we cannot control the actions of our distributors. Our inability to achieve any of these factors in a geographic distribution area will have a material adverse effect on our relationships with our third party distributors in that particular geographic area, thus limiting our ability to maintain and expand our market, which will likely adversely affect our revenues and financial results. We buy our supplies from a relatively limited number of suppliers, and disruption in supply may increase our production cost. For the years ended December 31, 2019, 2018 and 2017, three major suppliers accounted for approximately 76%, 72% and 61% of the Company’s total purchases, respectively. The loss of any such suppliers could result in increased expenses for our company and result in adverse impact on our business, financial condition and results of operations. Our bank accounts are not insured or protected against loss. We maintain our cash with various banks located in the PRC. Our cash accounts are not insured or otherwise protected. Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we would lose the cash on deposit with that particular bank or trust company. We are subject to risks relating to the banking facilities we use to overcome cash flow issues. We generate a large proportion of our sales revenue through wholesale channels and distribution networks (supermarkets and chain stores) requiring us to extend net-90 day payment terms in most cases. These payment terms are difficult to negotiate given the significant bargaining power of the counterparties to the agreements. For this reason, we rely on banking facilities to overcome cash flow shortfalls between delivery and payment collection. Although we engage third-party debt collection agencies when required to manage counterparty risk, we cannot guarantee that we will receive payment in a timely fashion from our customers. To the extent we fail to receive payment in time to service our banking facilities, our business to be materially impacted. 15 We are substantially dependent upon our senior management and key research and development personnel. We are highly dependent on our senior management to manage our business and operations and our key research and development personnel for the development of new products and the enhancement of our existing products and technologies. In particular, we rely on our CEO, Mr. Wangfeng Yan to manage our operations to some extent. Mr. Yan has been involved in the bamboo charcoal industry by working at our subsidiaries for almost ten years. Due to his experience in the industry in general and our company in particular for such a long period of time, he would be difficult to replace. While we provide the legally required personal insurance for the benefit of our employees, we do not maintain key man life insurance on any of our senior management or key personnel. The loss of any one of them would have a material adverse effect on our business and operations. Competition for senior management and our other key personnel is intense, and the pool of suitable candidates is limited. We may be unable to quickly locate a suitable replacement for any senior management or key personnel that we lose. In addition, if any member of our senior management or key personnel joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals and staff members of our company. Although each of our senior management and key personnel has signed a confidentiality and non-competition agreement in connection with his employment with us, we cannot assure you that we will be able to successfully enforce these provisions in the event of a dispute between us and any member of our senior management or key personnel. We compete for qualified personnel with other technology companies and research institutions. Intense competition for these personnel could cause our compensation costs to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel. If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals. We are heavily dependent upon the services of experienced personnel who possess skills that are valuable in our industry, and we may have to actively compete for their services. We are heavily dependent upon our ability to attract, retain and motivate skilled personnel to serve our customers. Many of our personnel possess skills that would be valuable to all companies engaged in our industry. Consequently, we expect that we will have to actively compete for these employees. Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate is substantially dependent upon our ability to locate, hire, train and retain our personnel. Moreover, our pool of available labor in Lishui is limited, as Lishui is a relatively small city in China. Accordingly, it may be difficult to recruit personnel to move to Lishui to work and to keep talented individuals from moving to other employers who recruit them. There can be no assurance that we will be able to retain our current personnel, or that we will be able to attract and assimilate other personnel in the future. If we are unable to effectively obtain and maintain skilled personnel, the development and quality of our services could be materially impaired. Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects. Our growth strategy includes building our brand, increasing market penetration of our existing products, developing new products, increasing our targeting of the home respiratory market in China, and increasing our exports. Pursuing these strategies has resulted in, and will continue to result in substantial demands on management resources. In particular, the management of our growth will require, among other things: 16 · · · · · continued enhancement of our research and development capabilities; information technology system enhancement; stringent cost controls and sufficient liquidity; strengthening of financial and management controls and information technology systems; and increased marketing, sales and support activities; and hiring and training of new personnel. If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected. We have not yet implemented advanced logistical management techniques, which may hamper our efficiency and growth. We have not yet implemented digital logistic management solutions and have not applied any advanced management techniques, such as enterprise resource planning or any structured logistical system and procedures, which may result in a loss of efficiency and require investment at a later stage. We have not yet committed to implement such systems and cannot guarantee that we will do so in the near future. To the extent we do not implement such techniques in a timely or efficient manner, we may be at a competitive disadvantage to those of our competitors who do. Our business may be negatively affected by adverse publicity. Failure or perceived failure by us to comply with legal, regulatory and compliance requirements could result in adverse publicity. In September 2015, we were subject to significant negative publicity resulting from reports published by a short seller of our shares. This negative publicity resulted in significant volatility in the trading price of our shares. Such adverse publicity could result in reputational harm, lead to increased regulatory supervision, affect our ability to attract and retain customers, affect our ability to attract and retain key personnel, affect our ability to maintain access to the capital markets, or have other material adverse effects on us in ways that are not predictable. Our business may be negatively affected by low share prices in the stock market. The trading price of our shares has been declined over the past year. And we encountered an over 90% decline in market value since 2015. The continued decline in our share price could continue to harm investor confidence, affect our ability to retain existing investors, affect our ability to attract potential investors, affect our ability to maintain access to the capital market, or have other material adverse effects on us in ways that are not predictable. We may be affected by disruptions to our production facilities. Our production facilities are subject to breakdown or failure of equipment, power supplies or processes, performance below expected levels of output or efficiency, obsolescence, labor disputes, natural disasters and the need to comply with relevant regulatory and requirements. From time to time, we may need to carry out planned shutdowns of our production plants for routine maintenance, statutory inspections and testing and may need to shut down various plants for capacity expansions and equipment upgrades. Moreover, our production processes are continuously being modified and updated. As a result of manufacturing process updates and improvements, from time to time, we may experience shutdowns, and disruptions to the operations. The occurrence of any of the above events may cause us to stop or suspend our production operations and we may not be able to deliver the products to our customers on a timely basis, which would have an adverse impact on its business, financial position and profitability. 17 If we fail to protect our intellectual property rights, it could harm our business and competitive position. We rely on a combination of patent, trademark and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights. We own thirteen patents in China covering our bamboo charcoal production technology. The process of seeking patent protection can be lengthy and expensive, our patent applications may fail to result in patents being issued, and our existing and future patents may be insufficient to provide us with meaningful protection or commercial advantage. Our patents and patent applications may also be challenged, invalidated or circumvented. We also rely on trade secret rights to protect our business through non-disclosure provisions in employment agreements with employees. If our employees breach their non-disclosure obligations, we may not have adequate remedies in China, and our trade secrets may become known to our competitors. Implementation of PRC intellectual property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and diversion of resources and management attention, which could harm our business and competitive position. We may be exposed to intellectual property infringement and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial condition and results of operations. Our success depends, in large part, on our ability to use and develop our technology and know-how without infringing third party intellectual property rights. If we sell our branded products internationally, and as litigation becomes more common in China, we face a higher risk of being the subject of claims for intellectual property infringement, invalidity or indemnification relating to other parties’ proprietary rights. Our current or potential competitors, many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain patents that will prevent, limit or interfere with our ability to make, use or sell our branded products in either China or other countries, including the United States and other countries in Asia. The validity and scope of claims relating to patents in our industry involve complex scientific, legal and factual questions and analysis and, as a result, may be highly uncertain. In addition, the defense of intellectual property suits, including patent infringement suits, and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become a party could cause us to: · · · · · pay damage awards; seek licenses from third parties; pay ongoing royalties; redesign our branded products; or be restricted by injunctions, each of which could effectively prevent us from pursuing some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our branded products, which could have a material adverse effect on our financial condition and results of operations. 18 We are dependent on our brand and trademark. We rely on our “Charcoal Doctor” brand in the marketing and distribution of our products. We believe that we have built significant goodwill in our brand in terms of the quality of products and services and it is widely recognized by the industry in the PRC. We consider our “Charcoal Doctor” brand to be vital in promoting product recognition and customer loyalty. Hence, if there are any major defects in our products or adverse publicity on our brand, the goodwill in our brand will be adversely affected and our customers may lose confidence in our products. This will adversely affect our sales of products, hence affecting our business and financial performance. Our charcoal briquette products have relatively low technical requirements; therefore, barriers to entry are minimal. We expect to face competition for our charcoal briquette products because competitors can create similar products at a relatively low cost because there are minimal barriers of entry. If competitors enter our market to create similar products they may be able to do so for a much lower price. To the extent our customers discriminate based on price, we may find that we lose market share to such producers. Moreover, we may be required to reduce our price in order to maintain or slow loss of market share for such products. As charcoal briquette products make up a substantial percentage of our revenues, even at a lower profit margin, the reduction of sales of such products could hurt our company. Risks Related to Doing Business in China Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our products and materially and adversely affect our competitive position. Substantially all of our business operations are conducted in China. Accordingly, our business, results of operations, financial condition and prospects are subject to economic, political and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. These government involvements have been instrumental in China’s significant growth in the past 30 years. In response to the recent global and Chinese economic downturn, the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits the growth of our industry or otherwise negatively affects our business, our growth rate or strategy, our results of operations could be adversely affected as a result. Labor laws in the PRC may adversely affect our results of operations. On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC, which became effective on January 1, 2008. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and not merit. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost- effective manner, thus materially and adversely affecting our financial condition and results of operations. 19 Imposition of trade barriers and taxes may reduce our ability to do business internationally, and the resulting loss of revenue could harm our profitability. We may experience barriers to conducting business and trade in our targeted markets, specifically South Korea, Japan and Russia, in the form of delayed customs clearances, customs duties and tariffs. In addition, we may be subject to substantial taxes on profits, revenues, assets and payroll, as well as value-added tax. The markets in which we plan to operate may impose onerous and unpredictable duties, tariffs and taxes on our business and products, and there can be no assurance that this will not reduce the level of sales that we achieve in such markets, which would reduce our revenues and profits. Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders. China passed the Enterprise Income Tax Law, or the EIT Law, and it is implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the State Administration of Taxation of China, or the SAT, issued the Circular Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the SAT Notice 82, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or enterprise group. Pursuant to the SAT Notice 82, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or enterprise group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. After SAT Notice 82, the SAT issued a bulletin, known as SAT Bulletin 45, which took effect on September 1, 2011, to provide more guidance on the implementation of SAT Notice 82 and clarify the reporting and filing obligations of such “non-domestically incorporated resident enterprise.” SAT Bulletin 45 provides procedures and administrative details for the determination of resident status and administration on post-determination matters. On January 29, 2014, the SAT issued Announcement of the State Administration of Taxation on Recognizing Resident Enterprises Based on the Criteria of de facto Management Bodies, to further clarify the reporting and filing procedure for the offshore entities controlled by a Chinese enterprise or enterprise group and recognized as a resident enterprise. Because THL, USCNHK and Euroasia are controlled (although indirectly) by a foreign individual, rather than by a PRC enterprise or a PRC enterprise group, we do not believe that any of THL,USCNHK or Euroasia is a PRC resident enterprise. 20 However, although both SAT Notice 82 and SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth in SAT Notice 82 and SAT Bulletin 45 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, PRC enterprise groups or by PRC or foreign individuals. If the PRC tax authorities determine that THL or USCNHK is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we complete our sales, including export sales, in China. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to the clause 26 of the EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our common stock, or the gain our non-PRC stockholders may realize from the transfer of our common stock, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC stockholders, or if non-PRC stockholders are required to pay PRC income tax on gains on the transfer of their shares of common stock, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes. We may be subject to a significant withholding tax should equity transfers by our non-resident enterprises be determined to have been done without a reasonable business purpose. In December 2009, the State Administration of Tax in China issued a circular on strengthening the management of proceeds from equity transfers by non-resident enterprises and requires foreign entities to report indirect sales of resident enterprises. If the existence of the overseas intermediary holding company is disregarded due to lack of reasonable business purpose or substance, gains on such sale are subject to PRC withholding tax. Due to limited guidance and implementation history of the circular, significant judgment is required in determining the existence of a reasonable business purpose by considering multiple factors, such as the form and substance of the arrangement, time of establishment of the foreign entity, relationship between each step of the arrangement, relationship between each component of the arrangement, implementation of the arrangement and the changes in the financial position of all parties involved in the transaction. Although we believe that our transactions during all the periods presented would be determined to have reasonable business purposes, should this not be the case, we would be subject to a significant withholding tax that could materially and adversely impact our financial position, results of operations and cash flows. We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law. We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may experience corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants or distributors of our company, because these parties are not always subject to our control. We are in process of implementing an anticorruption program, which prohibits the offering or giving of anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or retaining business. The anticorruption program also requires that clauses mandating compliance with our policy be included in all contracts with foreign sales agents, sales consultants and distributors and that they certify their compliance with our policy annually. It further requires that all hospitality involving promotion of sales to foreign governments and government-owned or controlled entities are in accordance with specified guidelines. In the meantime, we believe to date we have complied in all material respects with the provisions of the FCPA and Chinese anti- corruption law. 21 However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. Uncertainties with respect to the PRC legal system could adversely affect us. We conduct all of our business through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. Historically, the principal regulation governing foreign ownership of businesses in the PRC was the Guidance Catalogue for Industrial Structure Adjustments (the “Catalogue”). The Catalogue classified various industries into three categories: encouraged, restricted and prohibited. The Catalogue has been replaced by the Special Administrative Measures (Negative List) for Foreign Investment Access (2018), effective July 28, 2018, and amended and restated by the 2019 version, effective July 20, 2019 (the “Negative List”). The Negative List specifies the prohibited and non-prohibited (similar to the restricted in the Guidance Catalogue) industries for foreign investment. For the industries not covered by the Negative List, the foreign investment and the domestic investment have equal access. Foreign investors may not invest in the prohibited industries specified by the Negative List. For the non-prohibited industries on the Negative List, a foreign investor must obtain an investment permit. There are certain requirements on the equity ownership and the executive officers of the foreign invested enterprises. If PRC has certain equity requirements in certain investment fields, no foreign-invested partnership may be established. For example, pursuant to the latest Negative List, the general automobile industry falls in the prohibited industry and the percentage of foreign ownership cannot exceed 50% (except for some categories such as electric vehicle which is not prohibited). According to the Negative List, our charcoal products and electric vehicle products are not prohibited. Therefore, our proportion of the foreign investment for these products may be up to 100%. However, we may also produce the traditional automobiles which fall in the prohibited industry and are subject to the abovementioned 50% limit. In addition, we are not sure if the Negative List will change in a way that the foreign investment may be limited or prohibited in our business. Another example is the changes to the Chinese government’s subsidy/rebate support policies to EV manufactures. Those changes have happened on a yearly basis and are at least partially causing delays in in our collection of the accounts receivable. Governmental control of currency conversion may affect the value of your investment. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders. We are a holding company and we rely for funding on dividend payments from our subsidiaries, which are subject to restrictions under PRC laws. We are a holding company incorporated in the British Virgin Islands, and we operate our core businesses through our subsidiaries in the PRC. Therefore, the availability of funds for us to pay dividends to our shareholders and to service our indebtedness depends upon dividends received from these PRC subsidiaries. If our subsidiaries incur debt or losses, their ability to pay dividends or other distributions to us may be impaired. As a result, our ability to pay dividends and to repay our indebtedness will be restricted. PRC laws require that dividends be paid only out of the after-tax profit of our PRC subsidiaries calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions. PRC laws also require enterprises established in the PRC to set aside part of their after-tax profits as statutory reserves. These statutory reserves are not available for distribution as cash dividends. In addition, restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries may enter into in the future may also restrict the ability of our subsidiaries to pay dividends to us. These restrictions on the availability of our funding may impact our ability to pay dividends to our Shareholders and to service our indebtedness. 22 Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding. The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. Our PRC subsidiaries hold certain assets that are important to our business operations. If any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations. According to the SAFE’s Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, effective on December 17, 2012, and the Provisions for Administration of Foreign Exchange Relating to Inbound Direct Investment by Foreign Investors, effective May 13, 2013, if any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from the SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past. Fluctuations in exchange rates could adversely affect our business and the value of our securities. Changes in the value of the RMB against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount that we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of paying dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers or products relying on foreign inputs. Since July 2005, the RMB is no longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. Our trading business relies heavily on exchange rate fluctuations. We seek to match suppliers and potential purchasers, which may be located in different geographic areas, and to lock in the exchange rates in order to ensure an appropriate profit margin on such sales. To the extent we are unable to obtain favorable exchange rates, we may find lower profits or losses than we expect. We reflect the impact of currency translation adjustments in our financial statements under the heading “accumulated other comprehensive income (loss).” For years ended December 31, 2019, 2018 and 2017, we had adjustments of $(5,494,731), $(949,689) and $4,341,324, respectively, for foreign currency translations. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies. 23 If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably. In recent years, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our company and business operations will be severely hampered and your investment in our stock could be rendered worthless. PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to penalties and limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute profits to us, or otherwise adversely affect us. On October 21, 2005, the SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. According to Notice 75, prior registration with the local SAFE branch is required for PRC residents to establish or to control an offshore company for the purposes of financing such offshore company with assets or equity interests in an onshore enterprise located in the PRC, or an offshore special purpose company. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required for the injection of equity interests or assets of an onshore enterprise in the offshore special purpose company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore special purpose company. Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore special purpose companies that have made onshore investments in the PRC in the past are required to have completed the relevant registration procedures with the local SAFE branch by March 31, 2006. To further clarify the implementation of Circular 75, the SAFE issued Circular 19 on May 20, 2011. Under Circular 19, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders or beneficial owners who are PRC residents in a timely manner. However, on May 11, 2013, Circular 19 was annulled by Circular 21, issued by the SAFE. Circular 21 has not yet given clear guidance as to how to complete the relevant registration procedures with the local SAFE branch. While Ms. Yefang Zhang, a citizen of the Saint Lucia, is not required to register with the SAFE, it is not clear, especially with the annulment of Circular 19 and the absence of replacement guidance, whether Mr. Zhengyu Wang, a PRC resident who presently owns no shares of our company needs to register with the SAFE. In the event Mr. Zhengyu Wang receives any shares in the future and is a PRC resident at such time, he would be required to register with the SAFE. We cannot provide any assurances that such registration will be completed in a timely manner, or at all. As advised by our PRC legal counsel, if any future failure by any of our shareholders who are PRC residents, to comply with relevant requirements under this regulation could subject such shareholders and/or our PRC subsidiaries to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiaries or to provide loans to our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute dividends to our company, or otherwise adversely affect our business. 24 PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from the offerings of any securities to make loans or additional capital contributions to our PRC operating subsidiaries. As an offshore holding company, our ability to make loans or additional capital contributions to our PRC operating subsidiaries is subject to PRC regulations and approvals. These regulations and approvals may delay or prevent us from using the proceeds we received in the past or will receive in the future from the offerings of securities to make loans or additional capital contributions to our PRC operating subsidiaries, and impair our ability to fund and expand our business which may adversely affect our business, financial condition and result of operations. For example, the SAFE promulgated the Circular on the Relevant Operating Issues concerning Administration Improvement of Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or Circular 142, on August 29, 2008. Under Circular 142, registered capital of a foreign invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and may not be used for equity investments in the PRC. In addition, foreign invested companies may not change how they use such capital without the SAFE’s approval, and may not in any case use such capital to repay RMB loans if they have not used the proceeds of such loans. Furthermore, the SAFE promulgated a circular on November 9, 2010, or Circular 59, which requires the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents. In addition, to strengthen Circular 142, on November 9, 2011, the SAFE promulgated the Circular on Further Clarifying and Regulating Relevant Issues Concerning the Administration of Foreign Exchange under Capital Account, or Circular 45, which prohibits a foreign invested company from converting its registered capital in foreign exchange currency into RMB for the purpose of making domestic equity investments, granting entrusted loans, repaying intercompany loans, and repaying bank loans that have been transferred to a third party. Circular 142, Circular 59 and Circular 45 may significantly limit our ability to transfer the net proceeds from offerings of our securities or any future offering to our PRC subsidiaries and convert the net proceeds into RMB, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC. Risks Related to Our Corporate Structure and Operation We incur additional costs as a public company, which could negatively impact our net income and liquidity. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes- Oxley and rules and regulations implemented by the SEC and The NASDAQ Capital Market require significantly heightened corporate governance practices for public companies. We expect that these rules and regulations to increase our legal, accounting and financial compliance costs and make many corporate activities more time-consuming and costly. We do not expect to incur materially greater costs as a public company than those incurred by similarly sized U.S. public companies. If we fail to comply with these rules and regulations, we could become the subject of a governmental enforcement action, investors may lose confidence in us and the market price of our common shares could decline. 25 We have guaranteed the bank loan and share repurchase obligation of related parties and share purchase obligation of an unrelated party; if any such party fails to pay the bank loan or the share purchase obligation, our property may be subject to foreclosure or enforcement. In March 2019, we provided a guaranty on a line of credit on behalf of a related party, Zhejiang Forasen Food Co., Ltd. (“Forasen Food”). Forasen Food’s outstanding line of credit of RMB 10 million (approximately $1.4 million) will expire on March 4, 2022. In connection with this guaranty, we pledged our building and land’s rights as collateral for Forasen Food's loans. At the time we offered these guarantees, we believed Forasen Food would be able to repay (and would in fact repay) such loans and bank acceptance notes. Forasen Food, like our Company, is controlled by Ms. Yefang Zhang. For this reason, we are aware that Forasen Food has historically had a strong credit history with the banks with which it does business. We also guaranteed the share repurchase obligation of a related party in 2018 and that guaranty has been replaced by a guaranty for the share purchase obligation of an unrelated party in 2019. In May 2018, our wholly owned subsidiary Zhejiang Tantech Bamboo Technology Co., Ltd. (“Tantech Bamboo”) signed an 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 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 unrelated third party agreed to purchase the shares from the plaintiff by paying RMB 90 million, and all the co-guarantors including Tantech Bamboo jointly and severally guarantee the payment obligation regarding the RMB 90 million and other possible fees, for three years from June 30, 2020, the due date of the share purchase payment obligation. The other unrelated third party has paid RMB 32.06 million and RMB 57.94 million remains unpaid. Accordingly, in June 2020, Lishui Jiuanju Commercial Trade Co., Ltd. (“LJC”), another related party, issued to Tantech Bamboo an anti-guaranty guaranty to guarantee Tantech Bamboo’s potential payment obligation, and a bank statement of RMB 70 million. Therefore, our PRC counsel believes Tantech Bamboo’s legal risk has been relieved to some extent. The company believes that it is more likely than not that LJC will perform its guaranty obligation and Tantech Bamboo will not need to make the payment. Entities controlled by our employees, officers and/or directors control a significant percentage of our common shares, decreasing your influence on shareholder decisions. Entities controlled by our employees, officers and/or directors, in the aggregate, beneficially own approximately 40.8% of our outstanding shares as of June 30, 2020. As a result, our employees, officers and directors possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. These shareholders, acting individually or as a group, could exert control and substantial influence over matters such as electing directors and approving mergers or other business combination transactions. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our common shares. These actions may be taken even if they are opposed by our other shareholders. See “Share Ownership.” 26 The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies. As a publicly listed company, we are required to file periodic reports with the Securities and Exchange Commission upon the occurrence of matters that are material to our company and shareholders. In some cases, we need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our company. Similarly, as a U.S.-listed public company, we are governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public listing could affect our results of operations. We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects. We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we are subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports or proxy statements. We are not required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers are not required to report equity holdings under Section 16 of the Exchange Act and are not subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies. Our directors’ and executive officers’ other business activities may pose conflicts of interest. Our directors and executive officers have other business interests outside the company that could potentially give rise to conflicts of interest. For example, our Chairman, Zhengyu Wang, and his wife and our director, Yefang Zhang, collectively own all of Forasen Group. The Forasen Group’s primary business areas are investment, rubber trading, foodstuff production, and financial management. We also have historically engaged in rubber trading. Although we have significantly reduced our trading in rubber at Tantech to immaterial levels, both businesses were for a time trading similar products. Mr. Wang and Ms. Zhang work with the Forasen Group’s rubber trading department and other advisors to locate opportunities that meet the Forasen Group’s investment criteria. As Tantech has significantly reduced its rubber trading activities, they anticipate that any rubber trading opportunities would be presented to and considered by the Forasen Group rather than by Tantech. 27 Yefang Zhang is also the Chairman and Chief Executive Officer of Farmmi, Inc. (“Farmmi”), another Nasdaq listed company, and Zhengyu Wang is a director of Farmmi. Mr. Wang has historically devoted approximately 15% of his time to matters concerning Farmmi, approximately 15% of his time to matters for Tantech, and approximately 70% of his time to matters concerning Forasen Group. As Ms. Zhang and Mr. Wang devote considerable time and efforts to Farmmi and Forasen Group, these sort of business activities could both distract them from focusing on Tantech and pose an issue of time commitment. Mr. Wang and Ms. Zhang signed a Non-Competition Agreement with our company and Farmmi which provides that Mr. Wang and Ms. Zhang shall not vote in favor or otherwise cause our Company to engage in the business that Farmmi conducts. Although, because of these non-competition agreements, we do not believe that there are business activities of Mr. Wang and Ms. Zhang that will compete directly with our business operations, it is possible that the enforceability of these agreements may be challenged and a conflict of interest may occur. In addition, Forasen Group currently occupies approximately 500 square meters of our Tianning Street facility. We have not historically charged Forasen Group for renting this office space, but plan to do so in the near future. Although we believe we engage in sound corporate governance practices, there remains the risk that our company may be negatively affected by our directors’ or executive officers’ conflicts of interest. An insufficient amount of insurance could expose us to significant costs and business disruption. While we have purchased insurance to cover our certain assets and property of our business, the amounts and scope of coverage could leave our business inadequately protected from loss. If we were to incur substantial losses or liabilities due to fire, explosions, floods, other natural disasters or accidents or business interruption, our results of operations could be materially and adversely affected. Risks Related to Ownership of Our Common Shares We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common shares less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues reach $1.07 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common shares held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our stock price may be more volatile. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail our company of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. 28 If we continue to be unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common shares may decline. As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition, beginning with this annual report on Form 20-F, we are required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we continue to identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or the SEC, or other regulatory authorities, which could require additional financial and management resources. The requirements of being a public company may strain our resources and divert management’s attention. As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. As a result of disclosure of information in this annual report and in filings required of a public company, our business and financial condition become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations. We also expect that being a public company and these rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers. The market price of our common shares may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the price you paid. The trading prices for our common shares have fluctuated since we first listed our common shares. Since our common shares became listed on the NASDAQ on March 24, 2015, the trading price of our common shares has ranged from $0.81 to $33.97 per common share, and the last reported trading price on June 23, 2020 was $1.14 per common share. The market price of our common shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: · · actual or anticipated fluctuations in our revenue and other operating results; the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; 29 · · · · · actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; lawsuits threatened or filed against us; and other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business. We do not intend to pay dividends for the foreseeable future. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our common shares if the market price of our common shares increases. We will incur increased costs as a result of being a public company. As a public company, we incur legal, accounting and other expenses that we did not incur as a private company. For example, we must now engage U.S. securities law counsel and U.S. auditors that we did not require as a private company, and we have annual payments for listing on NASDAQ. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and NASDAQ, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we incur additional costs associated with our public company reporting requirements. While it is impossible to determine the amounts of such expenses, we expect that we incur expenses of between $500,000 and $1 million per year that we did not experience as a private company. 30 U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders. A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company,” or a PFIC, for any taxable year for which either (i) at least 75% of its gross income consists of certain types of “passive income” or (ii) at least 50% of the average value of the corporation’s assets produce, or are held for the production of, those types of passive income. For purposes of these tests, passive income includes rents and royalties (other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business) and does not include income derived from the performance of services. If we are treated as a PFIC, U.S. Holders would ordinarily be able to mitigate certain of the negative tax consequences if they are able to make: (i) a timely qualified electing fund (“QEF”) election; (ii) a protective QEF election; or (iii) a mark to market election with respect to the first taxable year in which we are considered a PFIC during the U.S. Holder’s holding period in its shares. We are not committing to provide our U.S. Holders with the information required for making a QEF election or protective QEF election. If we fail to provide such information, a QEF election with respect to such entity generally will not be available. In such event, the rules described in the next paragraph generally will apply. If we are treated as a PFIC, a U.S. Holder that does not make a QEF election generally will be subject to a special tax and an interest charge upon the sale of its shares or receipt of an “excess distribution” with respect to its shares. A U.S. Holder will be treated as receiving an “excess distribution” if the amount of the distributions received by the U.S. Holder in any taxable year is more than 125% of the average annual distributions paid by the Company with respect to its shares during the three preceding taxable years (or the period in which the U.S. Holder held such shares if shorter). In addition, a portion of any gain recognized by a U.S. Holder upon the sale of our shares may be recharacterized as ordinary income. Further, any dividends received from the Company, if the Company is treated as a PFIC, will not constitute qualified dividend income and will not be eligible for the reduced 20% rate of tax even if such rate would be available otherwise. If a U.S. Holder holds our shares during any taxable year in which we are treated as PFICs, such shares will generally be treated as stock in a PFIC for all subsequent years. We are subject to liability risks stemming from our foreign status, which could make it more difficult for investors to sue or enforce judgments against our company. Our operations and assets are located in the PRC. In addition, most of our executive officers and directors are non-residents of the U.S., and substantially all the assets of such persons are located outside the U.S. As a result, it could be difficult for investors to effect service of process in the U.S., or to enforce a judgment obtained in the U.S. against us or any of these persons. In addition, British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered. Lastly, under the law of the British Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action to enforce the constituent documents of the corporation, our amended and restated memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the general law and the articles and memorandum. 31 There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the laws of many states in the United States. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Tantech Bamboo was established in October 2002 under the trading name “Lishui Zhonglin High Tech Co., Ltd.” by its incumbent owner. Following the establishment of the Forasen Green Energy Group, later renamed Forasen Group Ltd. (“Forasen Group”), in May 2003, 60% of THL’s shares were acquired by the Forasen Group. A second subsidiary, Zhejiang Tantech Bamboo Charcoal Co., Ltd. (“Tantech Charcoal”), was acquired in September 2006 to manage the Forasen Group’s export business. In September 2008 a third subsidiary, Zhejiang Tantech Energy Technology Co., Ltd. (“Tantech Energy”), was established to research and develop bamboo charcoals application as a carbon component for EDLCs. On December 14, 2017, the Company entered into a sale agreement and related agreements to transfer its EDLC carbon business (including intellectual property rights and equipment) to Zhejiang Apeikesi Energy Co., Ltd. (the “Buyer”), a PRC start-up company controlled by Dr. Zaihua Chen, the Company’s then Chief Technology Officer. Following the renaming of the Forasen Group to its current name, 95% of Tantech Bamboo’s shares were acquired by USCNHK, a Hong Kong registered company, in December 2010. In May and December 2016, Tantech Holdings (Lishui) Co., Ltd., formerly Zhejiang Tantech Bamboo Technology Co., Ltd., a USCNHK’s wholly owned subsidiary, acquired 100% of Tantech Bamboo’s shares from USCNHK and five individuals. 32 Historical Timeline Below is a brief timeline of key dates in our Company’s history since its formation. · · · September 2001: Tantech Charcoal is established. October 2002: Tantech Bamboo is established as “Lishui Zhonglin High Tech Co., Ltd.” with registered capital of RMB 3.15 million. April 2003: Lishui Forasen Green Industry Group (the former name of Forasen Group Ltd (“Forasen Group”)) was established. · May 2003: Forasen Group acquires 60% of Tantech Bamboo. · · · · · · · · · · · December 2005: (1) Tantech Bamboo reorganizes its structure (a) from a limited company to a shareholder company and (b) to increase registered capital to RMB 21 million, resulting in a decrease of Forasen Group’s interest to 41.24%; (2) Tantech Bamboo is renamed “Zhejiang Tantech Bamboo Technology Co., Ltd.”; (3) Zhengyu Wang becomes legal representative of Tantech Bamboo. September 2006: Tantech Bamboo acquires Tantech Charcoal by transferring shares from Forasen Group and natural shareholders to Tantech Bamboo. As a subsidiary, Tantech Charcoal’s business scope is exporting Forasen Group’s products to a multitude of countries worldwide. September 2007: Forasen Group’s interest in Tantech Bamboo increases to 44.25%. January 2008: Tantech Bamboo increases its registered capital to RMB 27 million, decreasing Forasen Group’s interest to 34.41%. July 2008 through April 2009: Several shareholders of Tantech Bamboo transfer their interests to Forasen Group, increasing its interest in Tantech Bamboo to 51.45%. September 2008: Tantech Energy is established and operates as subsidiary of Tantech Bamboo. October 2008: USCNHK is established as “Raymond & O/B Raysucess Co., Limited”. October 2009: Forasen Group is renamed “Forasen Group”. November 2010: THL is established as “Sinoport Enterprises Limited.” December 2010: (1) USCNHK is renamed “USCNHK Group Limited”; (2) Tantech Bamboo increases its registered capital to RMB 80 million, increasing Forasen Group’s interest to 95%; (3) Forasen Group transfers all of its interest in Tantech Bamboo to USCNHK. April 2013: THL is renamed “Tantech Holdings Ltd.” · March 2015: THL completed an initial public offering of its common shares and listing on the NASDAQ Capital Market. · · · · · April 2015: THL established a subsidiary Euroasia. July 2015: Euroasia established a subsidiary Jiamu. December 2015: Hangzhou Tanbo Technology Co., Ltd. was established. February 2016: Jiamu established a subsidiary Jiyi. April 2016: USCNHK established a new subsidiary as “Zhejiang Tantech Bamboo Technology Co., Ltd.” · May 2016: USCNHK transferred 95% of Tantech Bamboo’s shares it owned to Zhejiang Tantech Bamboo Technology Co., Ltd. · December 2016: Zhejiang Tantech Bamboo Technology Co., Ltd acquired the remaining 5% of Tantech Bamboo’s shares. 33 · May 2017: Zhejiang Tantech Bamboo Technology Co., Ltd changes its name to Lishui Tantech Energy Technology Co., Ltd, which in turn changed its name in July 2017 to Tantech Holdings (Lishui) Co., Ltd. · · · · · · · · · On July 12, 2017, the Company acquired a 70% equity interest of Shangchi Automobile, formerly Suzhou E-Motors. The 70% equity interest comprises a 19% equity interest owned directly through Jiyi and a 51% equity interest owned through a series of contractual agreement with the owners of Wangbo. October 2017: Euroasia established a subsidiary Euroasia New Energy Automotive (Jiangsu) Co., Ltd. On December 14, 2017, the Company entered into a sale agreement and related agreements to transfer its EDLC carbon business (including intellectual property rights and equipment) to Zhejiang Apeikesi Energy Co., Ltd., a PRC start-up company controlled by Dr. Zaihua Chen, our former Chief Technology Officer. On January 10, 2018, the Company signed a share purchase agreement with Shanghai Shicai Minerals Co., Ltd. (“Shanghai Shicai”) to acquire all of the shares of Lishui Xincai Industrial Co., Ltd. (“Lishui XinCai”), a wholly-owned subsidiary of Shanghai Shicai, at a price of approximately $18.2 million (or RMB 120 million). Lishui Xincai owns 18% of the equity interests in Libo Haokun, so we indirectly hold a 18% stake in Libo Haokun. On October 24, 2018, the Company closed Khorgas Tantech Business Service Co., Ltd. and Khorgas Yabo Software Co., Ltd. On November 5, 2018, the Company closed Zhejiang Tantech Tourism Development Co., Ltd. On November 12, 2018, the Company closed Zhejiang Babiku Charcoal Co., Ltd. On November 13, 2018, the Company established Shenzhen E-Motors New Energy Sales Co., Ltd., a sales subsidiary through Shangchi Automobile (formerly known as Suzhou E-Motors). On June 26, 2019, the Company entered a share transfer agreement to sell all of its shares in its wholly-owned subsidiary Tantech Energy to an unrelated third party. ● On November 29, 2019, the Company signed an investment agreement with Jingning Zhonggang Mining Co., Ltd. (“Jingning Zhonggang”) to acquire 18% of the equity interest of Fuquan Chengwang, a wholly-owned subsidiary of Jingning Zhonggang, at a price of RMB 46.323 million, or $6.48 million. ● On December 31, 2019, the Company’s wholly owned subsidiary Tantech Bamboo transferred all of its shares in its wholly-owned subsidiary Tantech Charcoal to Lishui Xincai, the Company’s another wholly owned subsidiary Lishui Xincai. ● January 2020, Lishui Jikang Energy Technology Co., Ltd. was established. 34 B. Business Overview We develop and manufacture bamboo-based charcoal products for industrial energy applications and household cooking, heating, purification, agricultural and cleaning uses. We have grown over the past decade to become a pioneer in charcoal products industry made from carbonized bamboo. We are a highly specialized high-tech enterprise producing, researching and developing bamboo charcoal based products with an established domestic and international sales and distribution network. In 2017, we acquired a controlling equity interest in Suzhou E-Motors, which became known as Shangchi Automobile in 2019, and we intend to continue to grow our business to include the manufacture and sale of electric vehicles. We provide our charcoal products in the following areas: We oversee a national sales network that has a presence in 17 cities throughout China. We sell approximately 95% of our products in China, and the remaining 5% of products are sold internationally. We sell products in Japan, South Korea, Taiwan, the Middle East and Europe. In addition to our bamboo charcoal products, we also derive revenues from our trading activities, which primarily relate to industrial purchases and sales of charcoal. We are headquartered in the bamboo rich southwest of Zhejiang Province, in the city of Lishui. Zhejiang province, located in southeastern coastal China, is China’s tenth largest province in population, with 54.5 million residents, and eighth in terms of population density. The first province in China without any counties in the poverty-county list of the central government, Zhejiang has become one of the wealthiest and most commercial provinces in China. Its province-wide GDP of approximately RMB 5.6 trillion in 2018 places it as the fourth highest in China in absolute amount. Lishui is a prefecture-level city located in southwest Zhejiang province. Approximately 2.7 million residents live in the city, and city-wide GDP is approximately RMB 139.5 billion. Lishui’s primary industries include wood and bamboo production, ore smelting, textile, clothes making, construction materials, pharmaceutical chemistry, electronic machinery and food processing. As to wood and bamboo production, approximately 69% of Lishui prefecture is covered with forest, giving it the nickname “The Foliage Ocean of Zhejiang.” 35 Zhejiang Province City of Lishui We rely on a combination of patent, trademark and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights. We currently own six patents in China covering our bamboo charcoal production. For the years ended December 31, 2019, 2018 and 2017, three major suppliers accounted for approximately 76%, three major suppliers accounted for approximately 72% and three major suppliers accounted for approximately 61% of the Company’s total purchases, respectively. Because we purchase a material amount of our raw materials from these suppliers, the loss of any such suppliers could result in increased expenses for our company and result in adverse impact on our business, financial condition and results of operations. Bamboo and Bamboo Charcoal As a company primarily focused on bamboo charcoal, our business is in a sub-part of China’s bamboo industry. Government policies that encourage the use of bamboo also benefit the bamboo charcoal industry. Accordingly, we provide a brief overview of bamboo and those elements of China’s bamboo industry, insofar as they have an effect on the bamboo charcoal industry in general and our company in particular. Bamboo Bamboo plants are some of the fastest growing plants in the world, with some varieties growing more than three feet per day. Moreover, Bamboo can be re-grown quickly following harvesting, ensuring high frequency utilization without shortages. Unlike trees, individual bamboo culms emerge from the ground at their full diameter and grow to their full height in a single growing season of three to four months. Over the next 2–5 years, fungus begins to form on the outside of the culm, which eventually penetrates and overcomes the culm. Eventually the fungal growths cause the culm to collapse and decay. As a result, bamboo culms generally have life cycles of up to ten years, at which point they must be cut down in order to preserve the environment of the surrounding forest. Optimal quality bamboo culms for carbonization are cut at five years of age. Additional bamboo can be grown in the same area where previous culms grew. 36 Bamboo is considered environmentally friendly because it takes in substantial amounts of carbon dioxide and gives off oxygen as it grows. Indeed, bamboo sequesters more carbon dioxide than an equivalent region of plantation trees. Moreover, harvesting of bamboo is considered more environmentally friendly than allowing it to live through the full life cycle, as such harvesting maximizes the amount of carbon dioxide the bamboo can sequester because of the effects of fungus noted above. The total value of China's bamboo industry was approximately $30 billion. It employs 7.75 million people and has become a pillar industry of development of economic society of China’s bamboo main producing area and major income source of peasants’ families. Given bamboo’s importance in China, we believe that favorable government policies and regulations encouraging the advancement of bamboo technology in China generally will create an environment favorable to our increased production of bamboo-based charcoal products. The Chinese government is also working to develop its bamboo industry to meet its goals in environmental protection and green economic development, as planting bamboo is both profitable and environmentally- friendly, according to the International Network for Bamboo and Rattan (“INBAR”). Moreover, given the central government’s goal to reduce carbon dioxide emissions per unit of GDP by 40 to 45 percent by 2020 compared to 2005, we expect the bamboo technology industry to continue to be important to the country’s long-term planning. China now produces approximately 80% of the world’s bamboo and consumes approximately 60% of that production. According to statistics from INBAR, China has more than 6 million hectares for bamboo production and over 500 bamboo species. In 2012, for example, the domestic industry was worth $19.5 billion and employed more than 7.75 million people. During a period of rampant deforestation, China put in place restrictions on harvesting of natural wood and encouraged the country to make more use of bamboo. Under the National Forest Protection Program (“NFPP”), China implemented natural forest logging bans that covered 17 provinces in China. These bands required consumers of charcoal to look to other sources for creation of charcoal than the natural trees they were most familiar with using. During this time, bamboo charcoal became a viable alternative in the country. Bamboo has many desirable characteristics compared to timber based products: · · · · · Culms are ideally allowed to reach 5-7 years of maturity prior to full capacity harvesting. The clearing out or thinning of culms, particularly older decaying culms, helps to ensure adequate light and resources for new growth; Commercial growers can annually harvest between one-quarter and one-third of a bamboo grove that is at least three years old. Harvesting at such rates allows continuous, sustainable harvesting; Bamboo will re-grow from same rootstalk (rhizome); Plant tends to be drought tolerant Bamboo minimizes carbon dioxide gases and generates up to 35% more oxygen than an equivalent area of trees. One hectare of bamboo can sequester 62 tons of CO2 /year, while one hectare of young forest can sequester 15 tons of CO2 /year. The physical and environmental properties of bamboo make it an exceptional economic resource for a wide range of uses. It grows quickly and can be harvested annually without depletion of the parent plant and without causing harvesting damage or deterioration in soil quality; in addition bamboo is very versatile and has many uses in the construction, culinary, furniture, pulp, pharmaceutical, and textiles industries. New uses for bamboo are being developed as we understand its biological, chemical and physical characteristics. 37 According to the United Nations’ Food and Agriculture Organization the bamboo industry affects the lives of about 1.5 billion people around the world. About 2.5 billion people in the world depend economically on bamboo, and the international trade in bamboo amounts to between $5 and $10 billion. According to the International Network for Bamboo and Rattan (INBAR), the growth of the global bamboo market was expected to reach up to $15-20 billion/year in 2018. There are about 39 genera of bamboo and more than 590 species in China with 5.38 million hectares of pure bamboo forest, which accounts for 25% of the bamboo area in the world. With 5.38 million hectares of bamboo plantations and an annual increase of 100,000 hectares, China is leading the world’s bamboo industry in its number of varieties, amount of bamboo reserves, as well as production output, said Zehui Jiang, co-chair of INBAR’s board of trustees. Zhejiang province is situated on the shore of the East China Sea and has about thirty genera and four hundred varieties of bamboo. Bamboo products made there are sold all around the world, with an annual output of RMB 28 billion ($4.5 billion) in 2010. Zhejiang province has almost one fifth of the whole bamboo forest area in China. Moreover, approximately 69% of Lishui prefecture is covered with forest, giving it the nickname “The Foliage Ocean of Zhejiang.” Bamboo Charcoal Bamboo charcoal has been documented in China as early as 1486 AD during the Ming Dynasty in China. Bamboo charcoal has traditionally been used as a heating source, in replacement of wood, coal or wood charcoal. As a source of heat, bamboo charcoal has a calorific value approximately half that of an equivalent weight of oil, and similar to the calorific value of wood. In addition to being an efficient source of heat, bamboo charcoal is considered less polluting than wood charcoal, because it burns more cleanly due to a lower percentage of volatile matter. Smoke and pollution in charcoal burning relate largely to moisture content and volatile matter. While careful processing can control the moisture content, the ratio of volatile matter is affected by the source of charcoal. Traditional wood charcoals may range between 5 – 40% volatile matter free of moisture, depending on the type of wood and the temperature at which it is carbonized. Bamboo heating charcoal tends to be between 13 – 17% volatile matter free of moisture. Because of the relatively higher pollution levels in wood charcoal, it is estimated that the burning of wood fuel claims the lives of an estimated 2 million people every year who inhale the smoke. Moreover, it takes between seven and ten tons of wood to produce one ton of wood charcoal, compared with four tons of bamboo to produce one ton of bamboo charcoal. In addition to use as a heating source, bamboo charcoal has applications as an adsorbent, deodorizer, dehumidifier, purifier and electrical conductor. Nonactivated bamboo charcoal is a versatile mineral matter with great porosity and consequently high absorption ability. Bamboo charcoal’s porous surface area makes it an ideal air and water purifying agent, odor absorbent, additive, dehumidifier and electromagnetic wave absorber (electromagnetic waves from computers, mobile telephones and other electronics can be conducted through bamboo charcoal to dissipate their energy in the charcoal pores). While wood charcoal’s surface area may be as low as 20 m 2 /g, bamboo charcoal generally ranges from 200-600 m 2 /g, and our company’s EDLC carbon has achieved 2,200 m 2 /g. While bamboo charcoal has a high absorptive capacity after carbonization, it becomes even more effective after activation. Activated bamboo carbon is bamboo charcoal that has been taken through an extra step greatly increasing its absorptive abilities. Activated bamboo charcoal can be used for cleaning the environment, absorbing excess moisture and producing medicines. The carbonization process occurs in the absence of oxygen and produces a brown-black liquid containing more than 200 organic compounds known as bamboo vinegar, or pyroligneous acid. Following sedimentation two distinct layers appear: a light yellow-brown liquid (clarified bamboo vinegar) which can be refined to produce acetic acid, propionic acid, butyric acid, carbinol and organic solvents, and a viscid oily liquid (bamboo tar) containing large amounts of phenol substances. Bamboo vinegar is found in sanitary and health products as well as a range of horticultural fertilizers and organic solutions. 38 EDLC Carbon (Divested Business) On December 14, 2017, the Company entered into a sale agreement and related agreements (the “Agreements”) to transfer its EDLC carbon business (including intellectual property rights and equipment) to Zhejiang Apeikesi Energy Co., Ltd. (the “Buyer”), a PRC start-up company controlled by Dr. Zaihua Chen, our former CTO. After the completion of the transactions, the Company is expected to focus its core business on the development of electric vehicle products and traditional charcoal products. Tantech’s Board of Directors approved the terms of the sale based on a valuation report obtained by the parties and with knowledge that Dr. Chen was the Company’s CTO during the transaction. However, as part of the transactions, Dr. Chen resigned from the Company’s CTO position on December 31, 2017. The decision of the Company to divest its EDLC carbon business was made based on business considerations, including the fact that (1) the company’s EDLC carbon business had been dependent on a very limited number of customers, (2) capital constraints on additional substantial investment on developing EDLC Carbon products, (3) a challenging market condition and unfavorable political climate and (4) the Company’s future transition focus of its traditional charcoal business to electric vehicle business. Pursuant to the Agreements, Tantech sold to the Buyer all of its intellectual property rights related to EDLC carbon and the equipment for R&D and production. The Buyer paid Tantech a total purchase price of RMB 16 million. The payment will be made over 10 years. Other key terms include the following: (a) the first payment of 28% of the total purchase price, or RMB 4.48 million, was made in 2017, consisting of RMB 3.2 million in cash advancement and RMB 1.28 million as payment for Tantech’s EDLC carbon related IP rights; (b) the remaining balance of the purchase price will be paid evenly over the following nine years; (c) the second payment of RMB 1.28 million of the purchase price and cash interests on the remaining cash receivable was made in 2018; and (d) Tantech will lease its office space, including offices and EDLC carbon R&D and production facilities, to the Buyer, subject to a concession of a free leasehold for the first two years. Disposal of Tantech Energy On June 26, 2019, our wholly-owned subsidiary Tantech Bamboo entered a share transfer agreement to sell all of its shares in its wholly-owned subsidiary Tantech Energy to an unrelated third party. The consideration is RMB 6,500,000 (approximately US$ 941,000). The Company completed the disposition process in July 2019. 39 Electric Vehicles Pursuant to the Call Option Agreement executed on May 2, 2016, Supplemental Agreement I signed on December 22, 2016 and Supplemental Agreement II signed on July 12, 2017, the Company acquired a 70% equity interest of Shangchi Automobile, formerly Suzhou Yimao E-Motors Co., Ltd. The 70% equity interest include a 19% equity interest owned directly by Jiyi and a 51% equity interest owned through a series of contractual agreement with the owners of Wangbo. Jiyi is 100% owned by Jiamu, which is, in turn, wholly owned by Euroasia International Capital (“Euroasia”), a 100% owned subsidiary of 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 Power 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. Therefore, the Company believes that Wangbo should be considered as a Variable Interest Entity (“VIE”). Suzhou E-Motors was established in April 2011. It changed its name to Shangchi Automobile in January 2019. It develops, manufactures, and sells specialty electric vehicles. The company also offers solar cells, lithium-ion batteries, auto parts, and electric control systems in China. Its manufacturing facility, located in Zhangjiagang City, Jiangsu Province is 15,000 square meters. Shangchi Automobile has been approved by Ministry of Industry and Information Technology of the People's Republic China (MIIT) as qualified to manufacture electric vehicles. It is also entitled to both central and local government subsidies with any approved EV models. As of May 31, 2020, Shangchi Automobile has not updated the previous ten EV models and remained one fuel vehicle model approved by MIIT. Shangchi Automobile has to date developed a full range of electric buses and a variety of specialty vehicles. It has developed more than ten models of electric buses, electric logistics cars, and specialty vehicles, such as high-speed brushless cleaning cars, electric cleaning cars, special emergency vehicles, and funeral cars. The sale region for current products is mainly within Jiangsu Province where the Shangchi Automobile locates. In 2017, we sold 100 various types of vehicles, where 10 types of vehicles directly sold to Northern China, and over 90 types of vehicles were used in Northern China. In 2018, we sold 110 logistic vehicles to Southern China. In 2019, we sold 117 electronic logistic cars in fiscal 2019 on behalf of other vehicle manufacturers for commission income. Below are examples of the specialty vehicles produced by Shangchi Automobile. Urban Sanitary Vehicles. The Urban Sanitary Vehicles work with high efficiencies with low operating expenses. They travel (clean) around 20~30 km/hr with fuel consumption rates approximately 3.33 km/liter. The vehicles are equipped with professional sanitary vehicle chasses, with front axle drives & front axle steering to strengthen their operations’ stability and smoothness; the whole vehicle is made of strengthened steel plates and pipes, making it more durable and anti-collusive. 40 Tourist Buses. The Tourist Buses are 12-meter-long and 7-meter-long lithium-battery-based buses whose interior noise is less than 76 dBs and off vehicle acceleration noise is less than 82 dbs. Their fuel-saving rates are up to 50% and emissions rates are lowered 75%. Logistic Vehicles. The logistic electric vehicles are 4.2-meter-long, 810 kg standard load weight fully charged vehicles. Each are a 100% electricity- driven vehicle specially designed for logistics companies. The batteries for this vehicle can be charged and discharged quickly, and each vehicle is made of high quality steel stamping body which is highly durable. The Internal structure and the design of the car doors are both made for the deliverers’ convenience. 41 Below are the major vehicle components we purchase for assembling the electric vehicles (“EVs”): · · · · · Vehicle chassis Electric motors Lithium-ion battery packs Three-in-One electric control systems Vehicle carriage In general, the purchase of the vehicle chassis, electric motors, lithium-ion battery pack and three-in-one electric control system have covered two- thirds of EVs’ production cost. We purchase these components from four different but well-established suppliers in China. We currently rely on local EV distributors to sell our EVs to end-users. The primary reason for such a sales channel is the dependence on local government subsidy policies. In general, local governments only allow the locally-licensed EV distributors to sell EV vehicles, which are entitled to EV road permits and subsidies. Over the years, Shangchi Automobile has had more than 20 EV core technologies and patents, including nanotechnology for raw materials for power lithium electronics, group technology of power lithium electronics and battery management technology. 42 Our Processing Workflow We develop and manufacture our bamboo charcoal products using the following processing workflow: 43 We develop and manufacture our electric vehicles using the following processing workflow: Our Products 44 Before acquisition of Shangchi Automobile, we primarily produced and sold three categories of products, all of which are produced from bamboo charcoal and bamboo charcoal byproducts. Because of the lifespan and fast growth rate of bamboo, our products are considered environmentally friendly. Moreover, our facilities have received ISO 14001:2004 certification, which reflects our focus on measuring and managing our environmental impact. BBQ Products We sell pressed and formed charcoal briquettes for use in grills, incense burners, and other applications for which the primary purpose of the charcoal is burning for heat or fuel. These products are sold in China and internationally under the Algold brand. 45 Our charcoal briquettes are processed from carbonized bamboo (as to our self-produced BBQ charcoal) and wood (as to our OEM BBQ charcoal) into charcoal and pressed into shapes appropriate for our customers’ preferred use. These products include barbecue grill briquettes, disposable all-in-one barbecue grills (including charcoal), and fuel for incense and tobacco burners. We expect revenues generated from our charcoal briquette products in oversea market will increase, however we expect total revenue in our charcoal briquette will keep current relevant level in comparison to these other segments and in absolute terms. Charcoal Doctor Products Our primary consumer brand is Charcoal Doctor (“Tan Boshi” or “Dr. Tan” in Chinese). In processing our charcoal products, the primary byproducts are solid charcoal and charcoal vinegar. We make use of both the solid and liquid byproducts in our Charcoal Doctor products. Our Charcoal Doctor brand products have been the primary source of our revenue over the last few years. Charcoal Doctor products are sold throughout China and stocked by many supermarkets and specialty shops in Zhejiang Province and other provinces. We seek to protect and grow our market share pricing our products aggressively, often as much as 10-15% below our competitors’ prices. Our Charcoal Doctor gross profit margins average 26%, largely due to our industrialized and automated production processes. We plan to expand product lines in the coming years to take advantage of the many uses of bamboo charcoal and vinegar. Charcoal Doctor products can be categorized according to their physical state: liquid or solid: Our solid charcoal products are primarily used for purification and deodorization. These consumer products are made from dry distilled carbonized bamboo, and have the ability to absorb harmful substances and foul odors from the air, including benzene, toluene, ammonia and carbon tetrachloride. The primary ingredient of these products, activated charcoal, is an adsorbent. Our solid Charcoal Doctor products generally fit within three categories: (1) charcoal bags, primarily used as air purifiers and humidifiers, (2) charcoal deodorants and (3) toilet cleaning disks. Our primary Charcoal Doctor solid products include the following: · · · · Air purifiers and humidifiers Automotive accessories for air purification Underfloor humidity control Pillows and mattresses · Wardrobe deodorizers · Mouse pads and wrist mats · · · · · Refrigerator deodorant Charcoal toilet cleaner disks Liquid charcoal cleaner Shoe insoles Decorative charcoal gifts 46 Samples of the range of solid Charcoal Doctor products are pictured below. In addition to providing solid charcoal, the carbonization process also results in a liquid byproduct called bamboo vinegar. Bamboo vinegar is used in disinfectants, detergents, lotions, specialized soaps, toilet cleaners and fertilizers. We have also adapted our bamboo vinegar for use in a variety of agricultural applications: 47 · · · · · Fruit, vegetable, and other plant fertilizers Soil conditioners and sweeteners Flower nutrients Toilet cleaning liquid detergent and solid disks Hand washing sanitation Samples of the range of liquid Charcoal Doctor products are pictured below. We believe liquid products are crucial to maintaining close ties with the agricultural industry, which we expect will be a key area for growth in the coming years. We plan to expand in this area by adding production lines for daily health products, such as toilet-cleaning products, hand washing products, as well as other everyday household items based on silver ion anti-bacterial nanotechnology. 48 We use this silver ion nanotechnology for sterilization to improve the effectiveness of our sanitation and purification products. We purchase silver ion nano powder from third parties to add into our products. We use our own formulas for the purification and sanitation products that incorporate such powder. We have developed two kinds of products that use our silver ion nanotechnology. Our detergent products are based on bamboo vinegar and are supplemented by the introduction of silver ion nano powder. These products are used for washing clothes and are in the trial stage. We began trial sales of our silver nano detergent products in Yantai (Shangdong Province), Lishui (Zhejiang Province), Chengdu (Sichuan Province) and Zhengzhou (Henan Province) in November 2012. We have concluded our trial sales in Lishui and Chengdu (and plan to conclude sales in Yantai upon the exhaustion of current trial sales inventory), and our preliminary conclusions are that customers liked the product but were less enthusiastic about the packaging. As a result, we adjusted our packaging in preparation for full-scale sales. Given the investment required to improve brand awareness for our silver ion nano detergent, we will focus first on Zhengzhou before beginning to plan either the expansion plan or the timeline for such expansion into other cities in China. At the same time as we are selling such products under our Charcoal Doctor brand name in China, we are also in discussions to sell such products to one distributor in Dubai, who would then re-brand the products for resale in local markets in Africa and the Middle East. Our silver ion bamboo charcoal bag products are used for odor absorption and air purification. We combine our charcoal powder products with silver ion nano powder to achieve a charcoal bag that may be stored in a wider variety of locations. If our traditional bags are stored in conditions that are too damp and warm, mold or mildew may grow. Our silver ion nano products are able to fight the growth of mold and mildew, allowing them to be used in damp conditions without problem. We have begun to promote and sell limited numbers of such bags in connection with our sales of traditional charcoal bags. We are promoting these bags in anticipation of adding such products to our portfolio of products for sale in supermarkets and other stores. Our customer stores typically invite us to apply in June or July to update the products we will offer for sale in their stores, and we are required to pay a fee for shelf space at such time. Accordingly we plan to increase demand for our silver ion nano products in anticipation for adding them to the list of products we sell this year. As we will make these silver ion nano charcoal bags available everywhere we offer our traditional charcoal bags, we will leverage our existing sales and distribution channels to introduce these products to the market. Raw Materials Our primary raw material is bamboo charcoal. Each year, we purchase bamboo charcoal locally that has been prepared to our specifications from between 15 and 20 suppliers located in and around Lishui. The majority of such purchases comes from approximately four suppliers. In recent years, due to the rising awareness of environmental protection, the Zhejiang province is taking a series of measures to improve water environment, which has led to a massive closure of small-sized bamboo charcoal manufacturers. In addition, we are unable to purchase wood charcoal briquettes from our prior fiscal year’s second largest supplier, Tahe Xingzhongda Carbon Co. in 2016, due to shortage of supply. However, we have taken actions to remedy such matters, in particular to our primary raw material, bamboo charcoal. Therefore, we do not expect any shortage supply from bamboo charcoal in coming years. We also purchase bamboo vinegar for use in our liquid products. Our bamboo vinegar suppliers in some but not all cases are the same as our bamboo charcoal suppliers. As the supply of bamboo vinegar is directly related to the supply of bamboo charcoal, we believe we have a steady supply of bamboo vinegar given the prevalence of bamboo in the Lishui area. Accordingly, we do not anticipate any lack of availability of bamboo vinegar for our liquid products. 49 We purchase wood charcoal briquettes from a supplier in Heilongjiang province for use in our OEM BBQ charcoal products. As such products have low technical requirements and are typically used for heating and cooking purposes, we have found that competing on price makes purchasing wood-based charcoal for such purposes suit our customers’ requirements. Our primary source for wood charcoal briquettes, which we rebrand under our Algold brand for sale in China, is Tahe Xingzhongda Carbon Co. in Daxing Anling, Heilongjiang province. In 2016, we were unable to purchase raw material from Tahe Xingzhongda Carbon Co. It caused major decline in our domestic charcoal briquettes sale. While we have adjusted our purchasing strategies to look for alternatives. However, due to tightening environmental control in local authority, we expect the cost of wood charcoal briquettes would increase in the coming years. In addition to our primary raw materials, we also purchase small amounts of other raw materials, such as silver ion nano powder, fabric for charcoal bags, packaging materials, and coconut charcoal. We do not anticipate any difficulty in replacing the suppliers of any of such minor raw materials. The prices of our primary raw materials have not historically been volatile. We have generally experienced differences in price of less than 5% over the course of a year for our primary raw materials. Electric Vehicles Shangchi Automobile does not produce major vehicles components directly from raw material. In general, Shangchi Automobile purchases major parts directly from four major suppliers. The suppliers for parts are shown below: · · · Beijing National Energy Battery Technology Co., Ltd — Lithium-ion battery cells Dongfeng Xiangyang Travel Vehicle Co., Ltd — Vehicle chassis Suzhou Greencontrol Transmission Technology Co., Ltd — Electric motors · Wuhan Hiconics Power Technology Co., Ltd — Three-in-One electric control systems Distribution Channels and Methods of Competition International Markets and Customers Our bamboo charcoal and bamboo charcoal byproducts are also sold directly or indirectly through distributors to international markets. Such exported products include bamboo vinegar, bamboo charcoal and purification product. The majority of our export items are for non-energy use. After pivoting our business focus in 2017, less than 1% of our direct sales are currently international. Including business conducted with domestic distributors. However, we estimate that with respect to our household products that the percentage of goods sold for export is approximately 5%, with the majority destined for Japan, South Korea and Taiwan. 50 Domestic Markets and Customers Currently, our consumer products and specialty electric vehicles are sold via our distributors’ networks. In addition, we have a logistics center in Lishui and relationships with third-party warehousing companies in Hangzhou, Jinan, Shanghai and Zhengzhou. Starting from 2016, we have been selling our products mainly through distributors instead of operating logistics and warehousing facilities internally. In addition, we have significantly cut our sales to supermarket customers. We are in the process of expanding our product line to include toilet cleaning and kitchen cleaning products, among others. We believe there will be a high demand for these types of products because of growing awareness of cleanliness and environmental protection, as well as antibacterial products and disinfectants. In addition, we are in the process of restructuring our distribution network in an effort to cut both overall time and costs relating to the sale cycle. Geographic Distribution of Revenues Beginning in 2017, our charcoal products are sold via distributors instead of direct distribution to supermarkets and chain stores. As all of our sales are completed in China, with title transferring to our customers in the country, we estimate most of our products are sold and used in China. We have divested our EDLC line of business, which had contributed greatly to our international sales. 51 Electric Vehicles Supported by the Chinese government’s endorsement and driven by its focus on petroleum resource independence, environmental protection and the “Made in China 2025” industrial upgrade, we believe the electric vehicle sector is the most promising segment in the Chinese auto industry. China has become the largest new energy vehicle market in the world. According to a central government forecast, China’s new energy vehicle sales are projected to grow to 2.1 million units in 2020, and its penetration is expected to reach 7% of vehicle sales by 2020. Our specialty vehicles have a variety of uses in many areas. Each of these vehicles integrate the advanced technology of mechanical, electronic, hydraulic, chemical, environmental protection and other fields into a special vehicle chassis to realize its specific function. Specialty vehicles are widely used in the highway transportation, engineering construction, oil fields, mines, electricity, telecommunications, postal, medical, environmental sanitation, agriculture, water conservancy, aviation, food, public security, fire protection, justice and national defense construction markets. In general, our EV product faces two group of competitors: manufacturers of conventional fuel vehicles and EV manufactures. In terms of competitors specializing in conventional fuel vehicles, many of them are much larger in terms of size, have greater manufacturing capabilities, and have larger customer bases than we do. However, the conventional fuel vehicle manufacturers face many challenges, including environmental pollution and energy scarcity, which provides great opportunities for the rapid development of the EV industry in China. In addition, conventional fuel vehicle manufacturers have begun focusing their attention on developing and producing EV, and we expect that we may face tougher competition in the future from these manufacturers. There are many companies in China that engage in the research, production and distribution of electric vehicles. Competition within the electric vehicle market is intense as we have to compete with many domestic and global companies, established and new EV manufactures, some of which have greater brand recognition and resources than we do. As a brand new player in the Chinese electric vehicle industry, we hope our focus on developing specialty vehicles might give us advantages in a niche market, rather than facing strong competition from similar vehicles on the consumer vehicle market. Methods of Competition The primary market for our Charcoal Doctor line of products is household hygiene use. Our air purification, deodorizing, and other health promoting products such as our charcoal pillow, cater to a niche but growing market of health-conscious customers. Customers in this sector have a particular affinity to brands. Notwithstanding this loyalty, product-switching costs are low, so manufacturers must compete on price. We conducted a marketing survey in Guangzhou in October 2013 for our charcoal bag products. According to the survey, we found that a decrease in package weight of 10% or an increase in price of 5% resulted in a loss of sales of less than 1%, showing that the market could absorb minor changes. By contrast, when the price increase reached 10% or the package weight decrease reached 15%, we saw that 30% of respondents were willing to choose alternate brands or forego a purchase. We further found that for cleaning and purification products, 85% of respondents cared about design attractiveness and approximately 65% made purchasing decisions based on attractiveness, causing us to conclude that demand for our products is more heavily influenced by such products than by minor (but not major) economic fluctuations. 52 Because the household hygiene sector has enjoyed relatively strong growth in the last few years as a result of increases in disposable urban income and an increased awareness of healthy lifestyle products, we have focused on growing our market share in this industry. In order to do this, compete by pricing our products aggressively, often at a discount of 10 – 20% below our competitors. In addition, we pride ourselves on providing a high quality product, so that our customers believe they have received value for the price they pay. With regard to household carbonized bamboo products, the Charcoal Doctor brand is one of the largest and most famous. Our Charcoal Doctor brand name has been recognized as a “China Well-known Brand” by the China Brand Strategy Management Association, and our products have been recognized as a “Zhejiang Famous Forest Product” by the Zhejiang Famous Forest Product Affirmation Committee and have been awarded “The Fifth China Yiwu International Forestry Product Expo Gold Award” by the Fifth China Yiwu International Forestry Product Expo Committee. Moreover, the 2014 – 2018 China Bamboo Charcoal Products Market Research and Corporate Strategy Analysis Report notes high brand recognition for Charcoal Doctor products in China. The industry is geographically concentrated in the South East of China in the provinces of Anhui, Zhejiang and Fujian where bamboo is more prominent, the bamboo charcoal industry is also fragmented since it is subject to relatively low barriers of entry; low initial capital expenditure, low technical requirements (excluding high end EDLC carbon compounds), highly homogenous products and few substitutes. We face competition from a number of companies operating in the vicinity. Many of these companies have similar profiles in terms of size, number of employees and product ranges. One of the largest competitors is Zhejiang Maitanweng Ecology Development Co. Ltd., a local company also from Zhejiang Province. Zhejiang Maitanweng has the largest franchise in the industry with a presence in over 100 cities in China. Like our Company, Zhejiang Maitanweng has an extensive product portfolio of 200 household, automotive and health related bamboo charcoal-based products. Jie Jie Gao Charcoal is another company with a similar product portfolio. Also located in the Lishui vicinity, it also holds many awards, and its products are stocked by Walmart, Hualian, Century Mart and other supermarkets like our products are. Jie Jie Gao is also one of the founding members of INBAR — International Network for Bamboo and Rattan. Due to product homogeneity and low barriers to entry branding is an important differentiator in the industry. We are not aware of any foreign competitors in this specific segment. Awards and Recognition The Company is fully ISO 9000 and ISO 14000 certified and has received a number of national, provincial and local honors, awards and certifications for its quality products and scientific research efforts: 2004 · Lishui High-Tech Product Company Certification for its Bamboo Vinegar 2005 · · Zhejiang Province High Tech Product Award for its Bamboo Vinegar Zhejiang Science and Technology Award (Third Class) for R&D of a continuous distillation process during the bamboo carbonization process 53 2006 · · · · 2007 · · · 2008 Zhejiang Science and Technology Award (Third Class) for its Liquid Bamboo Vinegar Products Forestry Industry Award for Excellence in Forestry — Liquid Bamboo Vinegar Products (6th Anniversary) Lishui City Forestry Industry Key Enterprise in Forestry Award Liandu District High Tech Prize (Second Class) for R&D in Carbonization of Bamboo Zhejiang New Forestry High Tech Company Industrialization Project Award for R&D efforts in super capacitors using bamboo charcoal Zhejiang Provincial-Level Key Enterprise in Forestry Award Lishui Science and Technology Award (First Class) for its Liquid Bamboo Vinegar Products · Official China High Tech Industry Enterprise Certificate (this award entitles the company to preferential enterprise income tax rates of 15% rather than 25%) 2009 · · 2011 · · 2012 National Torch Plan Project Certificate for Liquid Bamboo Products National Science and Technology Progress Award (Second Class) for Bamboo Carbonization Zhejiang Science and Technology Award (Second Class) for its Activated Carbon Production Technology and Equipment Research Garden Unit Recognition for beautification and ecological efforts · Lishui City Recognition for Patent Grants 2013 · Zhejiang Province High Technology Enterprise Recognition 2014 · Lishui City Doctoral Working Station Research and Development We are committed to researching and developing applications of bamboo charcoal and activated bamboo charcoal. We believe scientific and technological innovations will help our Company achieve its long-term strategic objectives. R&D is an integral part of our operations and the crux of its competitive advantage and differentiation strategy. 54 Our R&D team is well educated and has far-reaching research capabilities. The R&D team has 3 dedicated researchers and analysts focusing on Charcoal Doctor product development and applications. Quality control is an important aspect of the team’s work and ensuring quality at every stage of the process has been a key driver in maintaining and developing brand value for the Company. We regularly collaborate with a number of top domestic universities and institutions for the advancement of bamboo charcoal research and process technology. Current efforts and collaborations cover a wide range of areas including but not limited to: bamboo vinegar applications, bamboo yield and quality improvements, bamboo’s natural characteristics, bamboo carbonization process optimization and engineering initiatives to optimize and integrate production processes. It is through these collaborations that the company has managed to secure important breakthroughs resulting in proprietary knowledge and patents. Research has been carried out in cooperation with the following notable institutions: · · · China National Bamboo Research and Development Center Zhejiang University of Agriculture and Forestry Zhejiang Academy of Forestry & Zhejiang Forestry Institute Our Research Projects We have led or participated in numerous scientific projects that have led to important technological breakthroughs and advances. However in December 2017, we have transferred all EDLC research projects to Zhejiang Apeikesi Energy Co., Ltd, a PRC start-up company controlled by Dr. Zaihua Chen, our former Chief Technology Officer. Project Description Time Period Project Level Technological innovations to achieve productive annual capacity of 3,000 metric tons of EDLC carbon 12/08-12/17 Central Government funded high-tech industrial project Bamboo carbonization technology R&D for tobacco product manufacturing Development of dry distillation of bamboo wood Technological innovations to be able to produce bamboo vinegar in a continuous process 12/07-6/10 6/07-5/09 4/06-4/08 Zhejiang Provincial Government funded scientific agricultural project Central government funded high-tech agricultural project Zhejiang Provincial Government funded scientific agricultural project Technological innovations to achieve productive annual capacity of 300 metric tons of EDLC carbon 1/06-12/07 Central Government funded high-tech industrial project Bamboo vinegar spontaneous combustion automation production technology Bamboo R&D for lithium-ion battery anodes 8/04-12/06 8/04-2/06 Central Government funded high-tech agricultural project Zhejiang Provincial Government funded scientific project The research and demonstration for technology of agricultural waste carbonization and low ignition point molding charcoal fuel preparation 01/16-12/18 Zhejiang Provincial Government directly funded scientific project Demonstration and promotion of green combustible carbon manufacturing technology using epicarps residue 15/08-12/17 Central Government funded forestry technology promotion project 55 During the years ended December 31, 2019, 2018 and 2017, we spent $327,260, 386,628 and $627,577, respectively, on R&D. Because we discontinued our EDLC carbon business, our R&D expense has decreased accordingly. Our Patents We rely on our technology patents to protect our domestic business interests and ensure our position as a bamboo carbon technology pioneer in our industry. We have placed a high priority on the management of our intellectual property. Some products that are material to our operating results incorporate patented technology. Patented technology is critical to the continued success of our products. However, we do not believe that our business, as a whole, is dependent on, or that its profitability would be materially affected by the revocation, termination, expiration or infringement upon any particular patent. We currently hold five patents on charcoal products and seventeen patents on electric vehicles as of April 30, 2020. Patents on Charcoal Products Patent Description Biomass acaricide with gasified tar for organic pesticides Methods for water and bamboo vinegar refining A Filling and fixing device for Bottles of Plant nutrient solution Laundry detergent bottles Refrigerator deodorant box Holder Patent Type Application Expiration Patent Number Tantech Bamboo Invention Jan. 24,2006 Jan. 23, 2026 ZL 200610049234.0 Tantech Bamboo Invention Nov. 13, 2003 Nov. 12, 2023 200310116248.6 Tantech Bamboo Utility Model Tantech Bamboo Design Tantech Bamboo Design Dec. 30, 2015 Jun. 28, 2013 Jun. 28, 2013 Dec. 29,2025 Jun. 27, 2023 Jun. 27, 2023 201521127995.4 201330292120.X 201330291808.6 56 Patents on Electric Vehicles Patent Description Road Sweeper Car Break Pad A radiator brake disc for easy installation A Pure Electric Express Logistics Delivery Vehicle An Electric EVA Type Instrument Panel Structure A safe body structure of EVA electric vehicle Holder Shangchi Automobile Shangchi Automobile Shangchi Automobile Shangchi Automobile Shangchi Automobile Shangchi Automobile Patent Type Patent for Invention Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode An environmentally friendly electric road sweeper Shangchi Automobile EVA electric vehicle body structure with reduced wind resistance Welding device for electric bus Brake test bench of electric bus A painting device for electric bus Electric bus brake Shangchi Automobile Shangchi Automobile Shangchi Automobile Shangchi Automobile Shangchi Automobile Electric bus tire disassembly and installation equipment Shangchi Automobile Assembly equipment for glass parts of electric bus Shangchi Automobile Speedometer inspection table of electric bus An auxiliary anti-slip device for electric bus An impact window breaker for electric bus Shangchi Automobile Shangchi Automobile Shangchi Automobile Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode Utility Mode 57 Application Expiration Patent Number Aug 28, 2012 Aug 27, 2022 ZL201210311790.6 April 1, 2017 Mar 31, 2027 ZL201720342785.X Oct 23,2017 Oct 22,2027 ZL201721371604.2 May 29,2018 May 28,2028 201820864875.X May 29,2018 May 29,2018 May 28,2028 201820812054.1 ZL201820811968.6 May 28,2028 May 29,2018 ZL201820811949.3 May 28,2028 May 29,2018 ZL201820811893.1 May 28,2028 Mar 11,2019 Mar 10,2029 ZL201920304901.8 Mar 12,2019 Mar 11,2029 ZL201920305048.1 Mar 11,2019 Mar 10,2029 ZL201920299713.0 Mar 12,2019 Mar 11,2029 ZL201920305227.5 Mar 12,2019 Mar 11,2029 ZL201920311747.7 Mar 11,2019 Mar 10,2029 ZL201920299890.9 Mar 11,2019 Mar 10,2029 ZL201920299127.6 Mar 12,2019 Mar 11,2029 ZL201920305222.2 Mar 12,2019 Mar 11,2029 ZL201920305206.3 REGULATIONS We are subject to a variety of PRC and foreign laws, rules and regulations across a number of aspects of our business. This section summarizes the principal PRC laws, rules and regulations relevant to our business and operations. Areas in which we are subject to laws, rules and regulations outside of the PRC include intellectual property, competition, taxation, anti-money laundering and anti-corruption. Investment Direction Regulations On March 27, 2011, the National Development and Reform Commission (“NDRC”) issued the Guidance Catalogue for Industrial Structure Adjustments (2011 edition), which was amended on February 16, 2013. This Catalogue is an important basis for the government to guide investment direction, promote technology innovation and industrial upgrading. Pursuant to relevant laws and regulations, in line with the promotion of energy conservation and green industry initiatives, the approval authorities will strictly control energy-intensive, polluting and natural resources industries, such as projects in low-end, capacity-redundant and over-expansion projects. Environmental protection departments and other departments with jurisdiction will also review such projects for compliance with applicable criteria. 58 The Catalogue divided industries into three categories: “encouraged,” “restricted,” and “eliminated” for investment. Industries not listed in the Catalogue are generally deemed as falling into a fourth category, “permitted.” The Catalogue has been replaced by the Special Administrative Measures (Negative List) for Foreign Investment Access (2018), effective July 28, 2018, and amended and restated by the 2019 version, effective July 20, 2019 (the “Negative List”). The Negative List specifies the prohibited and non- prohibited (similar to the restricted in the Catalogue) industries for foreign investment. For the industries not covered by the Negative List, the foreign investment and the domestic investment have equal access. Foreign investors may not invest in the prohibited industries specified by the Negative List. For the non-prohibited industries on the Negative List, a foreign investor must obtain an investment permit. There are certain requirements on the equity ownership and the executive officers of the foreign invested enterprises. If PRC has certain equity requirements in certain investment fields, no foreign- invested partnership may be established. According to the Negative List, our charcoal products do not fall under the prohibited industries. Given the Chinese government’s move toward more environmentally friendly initiatives, we believe the bamboo industry, and in particular, the bamboo charcoal industry, are poised to grow, both for heating and cooking purposes and also for charcoal byproduct uses for cleaning, purification and deodorization. According to the Negative List, foreign investors may invest fully in our electric vehicle products. Nevertheless, as we may also produce other automobile products, we still keep our VIE structure designed under the Catalogue which did not allow more than 50% of foreign investment in the general automobile industry. Chinese Central Government Subsidy Support Policies for EV Manufacturers 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 Chinese central government subsidy support policies, or rebate policies, have been changing every year. For example, the Chinese central government subsidy support policies effective as of January 1, 2017, called for a 20% of reduction in central government subsidies per electric car in 2017 from its 2016 level and the total local government subsidy matched to be not more than 50% of the total central government subsidies per electric car. The reduction of subsidies from both the central government and local governments inevitably increased the costs to the consumers to purchase our EVs, which caused temporary pressure for us to expand our EV sales. The change in subsidy payment methods in 2017 from paid-in-advance to paid post-sale and further delay in releasing subsidy payments for the EVs manufactured and sold in the prior years also caused the potential delay in collection of the accounts receivable from our business partners, which temporarily increased the pressure on our working capital for continuing operations. Since 2018, the rebate policies required all the EVs manufactured since 2016 to install the national platform so the government could monitor the mileage and other information. Accordingly, we installed the platform on our EVs manufactured since 2016. Since 2019, the rebate policies required the battery capacity attenuation can’t exceed 20%. Intellectual Property Rights Regulations The State Council and the National Copyright Administration, or the NCAC, have promulgated various rules and regulations relating to the protection of software in China. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with the NCAC or its local branches and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, software owners, licensees and transferees are encouraged to go through the registration process to enjoy the better protections afforded to registered software rights. On March 1, 2009, the MIIT promulgated the Administrative Measures on Software Products, or the Software Measures, which replaced the original Administrative Measures on Software Measures promulgated by MIIT in October 2000, to regulate software products and promote the development of the software industry in China. Pursuant to the Software Measures, software products which are developed in China and registered with the local provincial government authorities in charge of the information industry and filed with MIIT may enjoy the relevant encouragement policies. Software developers or producers may sell or license their registered software products independently or through agents. Upon registration, the software products will be granted registration certificates. Each registration certificate is valid for five years and may be renewed upon expiration. The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013 respectively, with its implementation rules adopted in 2002 and revised in 2014, protects registered trademarks. The PRC Trademark Office of the State Administration for Industry and Commerce, or the SAIC, handles trademark registrations and grants a protection term of ten years to registered trademarks. The MIIT amended its Administrative Measures on China Internet Domain Names in 2004. According to these measures, the MIIT is in charge of the overall administration of domain names in China. The registration of domain names in PRC is on a “first-apply-first-registration” basis. A domain name applicant will become the domain name holder upon the completion of the application procedure. Regulations on Tax Our business operations are governed primarily by tax laws in the PRC. A description of the material tax consequences applicable to holders of our common shares may be found in the section titled “Item 10. Additional Information.-E. Taxation.” For more information regarding the impact of the PRC Enterprise Income Tax Law, see “Risk Factors — Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.” Foreign Exchange Regulation The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries. 59 In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. In July 2014, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and capital operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas, or Circular 36, on August 4, 2014. This circular suspends the application of Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas to use the Renminbi capital converted from foreign currency registered capital for equity investments within the PRC. On March 30, 2015, SAFE released the Notice on the Reform of the Management Method for the Settlement of Foreign Exchange Capital of Foreign- invested Enterprises, or Circular 19, which has made certain adjustments to some regulatory requirements on the settlement of foreign exchange capital of foreign-invested enterprises, lifted some foreign exchange restrictions under Circular 142, and annulled Circular 142 and Circular 36. However, Circular 19 continues to, prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. On June 19, 2016, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, which took effect on the same day. Compared to Circular 19, Circular 16 not only provides that, in addition to foreign exchange capital, foreign debt funds and proceeds remitted from foreign listings should also be subject to the discretional foreign exchange settlement, but also lifted the restriction, that foreign exchange capital under the capital accounts and the corresponding Renminbi capital obtained from foreign exchange settlement should not be used for repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party. SAFE Circular 37 In July 2014, SAFE issued SAFE Circular 37, which supersedes SAFE Circular 75, and requires that PRC citizens or residents must register with the relevant local SAFE branch before making capital contribution to any offshore entity directly established or indirectly controlled by that PRC citizen or resident for the purpose of investment or financing and with onshore or offshore assets or equity interests legally owned by that PRC citizen or resident. In addition, the SAFE registrations are required to be updated with local SAFE branch with respect to that offshore special purpose company in connection with the change of its basic information, such as its company name, business term, shareholding by individual PRC citizens or residents, merger, or division and, with respect to the individual PRC citizens or residents in case of any increases or decreases of capital in that offshore special purpose company, or share transfers or swaps by the individual PRC citizens or residents 60 Share Option Rules Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. We will make efforts to comply with these requirements. Regulation of Dividend Distribution The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. Labor Laws and Social Insurance Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations. In addition, according to the PRC Social Insurance Law, employers in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds. C. Organizational structure Below is a chart representing our current corporate structure as of December 31, 2019: 61 Below is a chart representing our current corporate structure as of June 25, 2020: In the above charts, we provide the English names of our corporate entities. As to THL and USCNHK, the English names are the legal names of the entities. As to the other corporate entities, their legal names are in Chinese, and the English translations are provided as courtesy translations. 62 Our registered agent in the British Virgin Islands is Offshore Incorporations Limited. Our registered office and our registered agent’s office in the British Virgin Islands are both located at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Tantech Holdings Ltd. (“THL”) THL was incorporated on November 9, 2010 under the BVI Companies Act, 2004 as a company limited by shares under the name “Sinoport Enterprises Limited.” On April 15, 2013, Sinoport Enterprises Limited changed its name to “Tantech Holdings Ltd.” At the time of its formation, THL was authorized to issue 50,000 common shares with a par value of $1.00 per share. On November 19, 2010, THL issued 50,000 shares to its sole shareholder, Forasen Energy Co., Ltd, now named “Tanbsok Group Limited.” On November 25, 2014, in contemplation of the initial public offering of its common shares, THL effected a simultaneous (a) 1,000-for-1 split of its common shares and (b) pro-rata redemption for par value and cancellation of 600 of such shares (30,000,000 in total). This transaction was accomplished in this way for several business reasons: (1) we wanted to maintain $50,000 in aggregate share capital; (2) in anticipation of the offering, we desired to increase the total number of common shares and reduce their per-share price to a level consistent with the targeted offering price in the offering; and (3) prior to completion of the recapitalization, we had issued all of the shares we were authorized to issue and needed to create authorized but unissued shares by repurchasing a portion of such authorized and outstanding shares. Upon completion of these transactions, THL was authorized to issue 50,000,000 common shares, $0.001 per share, of which 20,000,000 are issued and outstanding. At formation, THL had one director, Dehong Zhang, a citizen of China. On June 21, 2013, Yefang Zhang, a citizen of the St. Lucia, was also appointed as a director of THL. In June 2014, THL appointed three independent directors, all citizens of the PRC: Hongdao Qian, Shudong Wang and Wencai Pan. On March 24, 2015, THL completed an initial public offering of 1,600,000 common shares. On March 1, 2016, THL completed a private placement of 1,693,000 common shares. On September 29, 2017, THL completed a private placement of 891,307 common shares. On September 28, 2018, THL completed an issuance of 150,000 common shares. On March 23, 2020, THL completed an issuance of 35,592 common shares. 63 USCNHK Group Limited (“USCNHK”) USCNHK was formed on October 17, 2008 under the Companies Ordinance (Chapter 32) of Hong Kong under the name “Raymond & O/B Raysucess Co., Limited.” On December 2, 2010, Raymond & O/B Raysucess Co., Limited changed its name to “USCNHK Group Limited.” USCNHK’s authorized share capital is HKD 10,000, and the company has issued 10,000 shares, par value HKD 1.00 per share, to its sole shareholder, THL. USCNHK has one director, Dehong Zhang, a citizen of the China. On June 21, 2013, Yefang Zhang, a citizen of the St. Lucia, was also appointed as a director of USCNHK. Tantech Holdings (Lishui) Co., Ltd. (“Lishui Tantech”) Lishui Tantech was formed on April 7, 2016 as Lishui Tantech energy technology Co., Ltd. On May 17, 2017, it changed its name to Lishui Tantech Energy Technology Co., Ltd., and on July 7, 2017 changed its name again to Tantech Holdings (Lishui) Co., Ltd. Lishui Tantech’s authorized share capital is RMB 200 million, of which USCNHK owns 100% interest. Lishui Tantech is organized as a limited liability company under PRC law. Lishui Tantech has one director, Zhengyu Wang, who is a PRC citizen. Lishui Xincai Industrial Co., Ltd. (“Lishui Xincai”) Lishui Xincai was formed on December 14, 2017 by an unrelated third party. Its authorized share capital is RMB 5 million. On December 25, 2017, the third party transferred its shares in Lishui Xincai to Lishui Tantech. Since then, Lishui Xincai has been Lishui Tantech’s wholly owned subsidiary. Lishui Xincai is organized as a limited liability company under PRC law. Lishui Xincai has one director, Wangfeng Yan, who is a PRC citizen. Zhejiang Tantech Bamboo Charcoal Co., Ltd. (“Tantech Charcoal”) Tantech Charcoal was formed on September 5, 2002. Tantech Charcoal’s authorized share capital is RMB 3.5 million, of which Lishui Xincai owns 100%. Lishui Xincai purchased the equity interest from Tantech Bamboo on December 31, 2019. Tantech Charcoal is organized as a limited liability company under PRC law. Tantech Charcoal has two directors, Fengwang Yan and Xuefen Zhang, who are PRC citizens. Lishui Jikang Energy Technology Co., Ltd. (“Jikang Energy”) Jikang Energy was formed on January 2, 2020. Jikang Energy’s authorized share capital is RMB 5 million, of which Lishui Xincai owns 100%. Jikang Energy is organized as a limited liability company under PRC law. Jikang Energy has one director, Wangfeng Yan, who is a PRC citizen. Jikang Energy is a holding company and does not conduct any substantial business. Hangzhou Tanbo Technology Co., Ltd. (“Tanbo Tech”) Tanbo Tech was formed on December 8, 2015. Tanbo Tech’s authorized share capital is RMB 10 million, of which Tantech Bamboo owns 100%. Tanbo Tech is organized as a limited liability company under PRC law. Tanbo Tech has one director, Zhengyu Wang, who is a PRC citizen. Zhejiang Tantech Bamboo Technology Co., Ltd. (“Tantech Bamboo”) Tantech Bamboo was formed on October 23, 2002 under the name “Lishui Zhonglin High-Tech Co., Ltd.” (Chinese:丽水中林高科有限公司). On December 31, 2005, Tantech Bamboo changed its name to “Zhejiang Tantech Bamboo Technology Co., Ltd.” Tantech Bamboo’s authorized share capital is RMB 80 million, of which Lishui Tantech owns 100% interest. Tantech Bamboo has one director, Zhengyu Wang, who is a PRC citizen. 64 EAG International Vantage Capitals Limited (“Euroasia”) Euroasia was formed on April 27, 2015. Its share capital was HKD $10,000. It was organized as a limited company in Hong Kong, of which THL owns 100%. Euroasia has one director, Yefang Zhang, who is a citizen of Saint Lucia. In our previous reports, we called it Euroasia International Capital Co., Ltd., which is the English translation of its Chinese name 欧亚通国际资本有限公司. Euroasia New Energy Automotive (Jiangsu) Co., Ltd. (“Euroasia New Energy”) Euroasia New Energy was formed on October 24, 2017. Its authorized share capital is USD 30.1 million, of which Euroasia owns 100%. It is organized as a limited liability company under PRC law. Euroasia New Energy has one director, Mingqin Dong, who is a PRC citizen. Shanghai Jiamu Investment Management Co. Ltd. (“Jiamu”) Jiamu was formed on July 14, 2015. Its authorized share capital is RMB 500,000, of which Euroasia owns 100%. It is organized as one-person limited company (Taiwan,Hong Kong & Macao invested) under PRC law. Jiamu has one director, Zhengyu Wang, who is a PRC citizen. Hangzhou Wangbo Investment Management Co. Ltd. (“Wangbo”)-VIE Wangbo was formed on February 2, 2016. Its authorized share capital is RMB 500,000. Henglong Chen and Zhengyu Wang, as the original shareholders, held 5% and 95% shares respectively. On June 6, 2017, Henglong Chen transferred his 5% shares to Wangfeng Yan. On December 4, 2019, Zhengyu Wang transferred his 95% shares to his daughter Xinyang Wang. The legal representative is Wangfeng Yan. Hangzhou Jiyi Investment Management Co. Ltd. (“Jiyi”) Jiyi was formed on February 2, 2016. Its authorized share capital is RMB 500,000, of which Jiamu holds 100%. It is organized as a limited liability company under PRC law. It has one director, Zhengyu Wang, who is a PRC citizen. Shangchi Automobile Co., Ltd. (“Shangchi Automobile”), formerly known as Suzhou E-Motors On July 12, 2017, the Company acquired 70% of the equity interest of Suzhou Yimao E-Motors Co., Ltd., which changed its name to Shangchi Automobile in January 2019 from its original shareholder. Shangchi Automobile is a specialty electric vehicles and battery manufacturer based in Zhang Jia Gang City, Jiangsu Province, China. After the acquisition, the Company owns a 100% equity interest of EAG International Vantage Capitals Limited, a Hong Kong limited company (“Euroasia”) and its wholly owned subsidiary Jiamu, which further owns 100% equity interest of Jiyi. Jiyi owns a 19% of equity interest of Shangchi Automobile. In addition, Jiamu entered into a series of contractual agreements with the owners of Wangbo, which owns 51% of the equity interests of Shangchi Automobile. The latest agreements include an Exclusive Management Consulting and Technology Agreement, two Equity Pledge Agreements, two Exclusive Call Option Agreements, two Proxy Agreements and two Power of Attorney (collectively, the “VIE Agreements”). Pursuant to the above VIE Agreements, which are described in further detail below, Jiamu has the exclusive right to provide Wangbo consulting services related to business operations including technical and management services. Taken together, the VIE 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. 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”. As a result, the Company ultimately controls a 70% equity interest of Shangchi Automobile and the accounts of Shangchi Automobile are consolidated into those of the Company. Euroasia, Jiamu, Jiyi and Wangbo are all investment holding companies with no significant business activities. (collective “E-Motor Holdings”). 65 Contractual Arrangements We have chosen to use contractual relationships in our corporate structure because direct investment by foreign-owned companies in the automobile industry is restricted to own no more than 50% of equity. Historically, the principal regulation governing foreign ownership of businesses in the PRC was the Foreign Investment Industrial Guidance Catalogue, effective as of April 10, 2015 (the “Catalogue”). The Catalogue classified various industries into three categories: encouraged, restricted and prohibited. Tantech is engaged in business in industries where direct foreign investment over 50% was expressly prohibited: automobile industry. Due to the previous regulations on foreign ownership of PRC businesses, Jiamu and Wangbo entered into a series of contractual arrangements, also known as VIE Agreements. The variable interest entity, or VIE, agreements are designed to provide Jiamu with the power, rights and obligations equivalent in all material respects to those it would possess as the sole equity holder of its controlled company, including absolute control rights and the rights to the assets, property and revenue of Wangbo. Our PRC counsel has advised that the VIE agreements constitute valid and binding obligations of the parties to such agreements and are enforceable and valid in accordance with the laws of the PRC. However, the Catalogue has been replaced by the Special Administrative Measures (Negative List) for Foreign Investment Access (2018), effective July 28, 2018, and amended and restated by the 2019 version, effective July 20, 2019 (the “Negative List”). The Negative List specifies the prohibited and non-prohibited (similar to the restricted in the Catalogue) industries for foreign investment. For the industries not covered by the Negative List, the foreign investment and the domestic investment have equal access. According to the Negative List, our new energy automobile products under Shangchi Automobile are not prohibited. Nevertheless, we have decided to keep the VIE structure as Shangchi Automobile may also produce traditional automobile products. The VIE Agreements, entered into as of July 13, 2017 and renewed effective December 10, 2019 because of the Wangbo shareholder change, are described below and consist of an Exclusive Management Consulting and Technology Agreement, two Equity Pledge Agreements, two Exclusive Call Option Agreements, two Proxy Agreements and two Power of Attorney. As an overview, these agreements taken together are designed to allow Jiamu to manage the operations of Wangbo and to receive all of the net income of Wangbo in return. The following is a summary of the common contractual arrangements that provide us with effective control of our VIE and that enable us to receive substantially all of the economic benefits from its operations. Exclusive Management Consulting and Technology Agreement This Exclusive Management Consulting and Technology Agreement (the “Service Agreement”) was made and entered into by Jiamu and Wangbo. Pursuant to terms and condition of the Service Agreement, Wangbo appointed Jiamu as its exclusive service provider providing comprehensive management consulting, technical supporting, intellectual property license and other relevant services, including all services within the primary business of Wangbo and decided necessary from time to time by Jiamu, including, (1) management consulting, (2) technical support and (3) intellectual property. Wangbo agreed to accept consulting and services provided by Jiamu and not to acquire, directly or indirectly, the same or similar consulting and/or services as set in the Service Agreement from any third party, except with Jiamu’s prior written consent. Both parties agree that Jiamu can designate other parties to provide Wangbo with services and/or support stated in the Service Agreement. 66 Exclusive Call Option Agreement Two Exclusive Call Option Agreements (the “Call Option Agreements”) were entered. One was entered into by and among (a) Jiamu, (b) Wangbo and (c) Xinyang Wang, 95% shareholder of Wangbo. The other one was entered into by and among (a) Jiamu, (b) Wangbo and (c) Wangfeng Yan, 5% shareholder of Wangbo. Xinyang Wang and Wangfeng Yan are Wangbo Shareholders. Pursuant to the Call Option Agreement and as permitted by the applicable laws of the People’s Republic of China, the parties have agreed that, at the exercise of such purchase option by Jiamu, (i) the Wangbo Shareholders will transfer all of their shares of Wangbo to Jiamu, or (ii)Wangbo will transfer its assets to Jiamu. To conduct the abovementioned share transfer and assets transfer, Wangbo and the Wangbo Shareholders irrevocably grant Jiamu an exclusive and unconditional asset purchase right and share purchase right, respectively. Equity Pledge Agreement Two Equity Pledge Agreements (the “Pledge Agreements”) were made and entered into by and among Jiamu as pledgee, Wangbo, and each of the Wangbo shareholders. The Wangbo Shareholders pledged all current and future shares of Wangbo held by such Wangbo Shareholders to Jiamu, in order to guarantee that Wangbo and/or the Wangbo Shareholders will fulfill their respective responsibilities and obligations, and will ensure that Jiamu is able to obtain all rights and interests under the (a) Exclusive Management Consulting and Technology Agreement and any supplemental agreements (if any) between Jiamu and Wangbo; (b) Exclusive Call Option Agreements and any supplemental agreements (if any) among Jiamu, Wangbo and the Wangbo Shareholders; and (c) Proxy Agreements and any supplemental agreements (if any) among Jiamu, Wangbo and the Wangbo Shareholders. 67 Proxy Agreement Two Proxy Agreements (the “Proxy Agreements”) were made and entered by and among Jiamu as trustee, the Wangbo Shareholders as trustors and Wangbo. Under the Proxy Agreements, the Wangbo Shareholders irrevocably authorized Jiamu or its designated person (such as director or successor or liquidator of Jiamu) to solely exercise such Wangbo Shareholders’ voting rights in Wangbo under the law and bylaws of Wangbo as representative, including, without limitation (a) convene, convoke and attend shareholders’ meeting of Wangbo as representative of the Wangbo Shareholders; (b) submit proposals to Wangbo’s board of directors as representative of the Wangbo Shareholders; (c) vote on any matters to be deliberated at the shareholders’ meeting of Wangbo; (d) sign on minutes of Wangbo’s shareholder meetings; (e) exercise other voting rights of shareholders under Wangbo’s bylaws; (f) submit relevant documents to industrial and commercial registration offices and other government authorities concerned in order to performance or guarantee this contract as representative of the Wangbo Shareholders; and (g) sign share transfer agreements or other relevant documents, deal with official documents, registration, records or other procedures in order to enable share transfer under the Call Option Agreement take effect. Power of Attorney The Powers of Attorney were made and entered into by Wangbo Shareholders and Mr. Wangfeng Yan. Pursuant to the Powers of Attorney, Xinyang Wang and Wangfeng Yan designated Mr. Zhengyu Wang to exercise their rights under the Proxy Agreements on behalf of them. Shenzhen Yimao New Energy Sales Co., Ltd. On November 13, 2018, we established Shenzhen Yimao New Energy Sales Co., Ltd., a sales subsidiary of Shangchi Automobile. D. Property, Plants and Equipment There is no private land ownership in China. Individuals and entities are permitted to acquire land use rights for specific purposes. We were granted land use rights for our facilities in Lishui City, which extend until 2052. Following is a list of our properties: Location Address Land Use Expiration/Lease Term No. 888 Tianning Street, Lishui City, Zhejiang Province Hangzhou, Zhejiang No. 508 Wen San Road, Room 1106 Lishui, Zhejiang Hangzhou, Zhejiang Fl 9, 459 Qianmo Rd, Binjiang District Hangzhou, Zhejiang No. 10 Cen Shan Road, Shuige Industrial Zone, Lishui City January 1, 2020 to December 31, 2020 Zhangjiagang, Jiangsu No. 4 Bridge, 204 Way, Yeyu Town Shenzhen, Guangdong June 7, 2051 December 18, 2052 Orally agreed to extend to August 9, 2020 August 10, 2019 to August 9, 2020 November 12, 2019 to November 11, 2020 Suite 510, Floor 5, Tower B, Zhongshe Square, 1028 Buji Rd, Luohu District Space Ground Floor Area 118 m2 15,208 m2 13,755 m2 357 m2 400 m2 12,904 m2 26,580 m2 26,580 m2 120 m2 Currently, household products are sold via our sales and distribution networks located in 17 cities (Changchun, Changsha, Chengdu, Chongqing, Fuzhou, Guangzhou, Hangzhou, Harbin, Jinan, Lanzhou, Lishui, Shanghai, Shenyang, Taiyuan, Tianjin, Yantai, and Zhengzhou). We do not own or lease locations in Shenyang, Tianjin, Yantai, Taiyuan, Zhengzhou, Changsha, Fuzhou or Lanzhou. In addition, we have logistics centers in Lishui and relationships with third-party warehousing companies in Hangzhou, Jinan, Shanghai and Zhengzhou. 68 Fixed assets at our properties consist of office equipment at all of our locations and, at our Lishui properties, equipment for the carbonization and processing of charcoal, both for our household goods products and for our EDLC carbon. This equipment includes furnaces, boilers, mixers, kilns/ovens, jet mills, pulverizers, chemical analytic equipment, generators, briquette hydraulic powder molding machines, carbon activation and pickling tanks, belt dryers, air compressors, bamboo vinegar refining equipment, container production lines, hot acid/water washing equipment and automatic packing machines. All of our real property and fixed assets are encumbered by secured loans from our creditors. Tantech Bamboo granted the encumbrances on our properties at the Tianning Industrial Zone facility. We have relocated our facilities from our facility on Tianning Street to a new, larger facility on Cen Shan Road. Forasen Group currently occupies approximately 500 square meters of our Tianning Street facility as its office. We have not historically charged Forasen Group for renting this office space. None of our property is affected by any environmental issues that may affect our use of the property. At present, our plans to further develop, expand or improve these properties are funded through proceeds from our initial public offering and through our operating cash flows. Shangchi Automobile, formerly Suzhou Yimao, has a manufacturing facility, located in Zhangjiagang City, Jiangsu Province, of 26,580 square meters. Images of Shangchi Automobile’s facilities are presented below: 69 Images of our facilities are presented below: Productive Capacity We currently produce all of our charcoal products at our Shuige Industrial Zone facility in Lishui. Our facilities in Hangzhou and our Tianning facility in Lishui are used for general office and administration purposes. Shuige Industrial Zone facility The following is a map of our Shuige Industrial Zone facility, which displays the building numbers referred to in the below tables describing the productive uses of such facility. 70 Non-production properties: Functional uses and location Office administration, training, product display and so on (First through Area (m2) Actual used area (m2) Reserved area (m2) Space utilization Reserved purpose fourth floors of building No. 1) 4,478 3,359 1,120 75% Additional offices New product development team, EDLC research and development center 27.8% 100% N/A Research and development center (Fifth and sixth floors of building No. 1 and building 11) Employee dorms (Building No. 9, 10) Other (boiler room, guard room, waste water processing and so on) (Building No. 13 through 16) 4,027 7,182 1,120 7,182 2,907 None 218 218 None 100% N/A We currently reserve 4,478 m2 for office administration, training and product display purposes, of which 3,359 m2 are currently used. We have reserved 1,120 m 2 for additional office space. Our research and development center consists of 4,027 m2, of which we use 1,120 m2 at present. We plan to use the additional space on the sixth floor of our Shuige Industrial Zone facility for our new product development team when our needs exceed the space provided on the fifth floor, but we do not have a specific time or plan in place for expanding such team. Until recently when we decided to divest our EDLC business, we had planned to use the balance of space devoted to this purpose to implement an EDLC research and development center. We use 218 m2 for general facility purposes, including our boiler room, guard room and other similar purposes. Our employee dorms cover 7,182 m2 , all of which is in use. Production properties: Functional uses and location Barbecue charcoal production line (Building No. 2) Solid deodorant and purification product production line (Building No. 3, half of building No. 4) Liquid household hygiene product and bamboo vinegar product production line (Half of building No. 4) EDLC carbon production line (Building No. 5, 6, 7, 8, 9) Area (m 2 ) Actual used area (m 2 ) Reserved area (m 2 ) Space utilization Current capacity (metric tons) (1) Actual productivity (metric tons) Capacity utilization 11,854 5,927 5,927 50% 1,000 309 30.9% Reserved purpose Installation of equipment for production expansion 10,984 10,984 0 100% 20,000 20,949 104.7%(2) N/A 3,440 1,720 1,720 50% 5,000 4,091 82.0% 9,098 3,473 5,625 38.2% 500 304 60.8% Installation of a new production line Build a production line for 1,000 additional tons of EDLC carbon capacity 71 (1) All of our production capacity rates assume 250 working days per year, 8 hours per day. We believe we can increase the number of days worked per year or number of hours worked per day to increase our production capacities if we choose to do so in the future. (2) We exceeded 100% utilization rate by operating this production line in excess of the assumed capacity rates. We have reserved 11,854 m2 of our Shuige Industrial Zone facility for our barbecue charcoal production line, and currently use 5,927 m2 of this area. The remaining 5,927 m2 is reserved for a future production line. In our existing barbecue charcoal production line, we have a current capacity of approximately 1,000 tons per year, and we produced 340 tons of BBQ charcoal in 2015, a capacity utilization rate of 34%. We have reserved 10,984 m2 of our Shuige Industrial Zone facility for our solid deodorant and purification product production line. We currently use all of the space. In our existing Charcoal Doctor solid product production line, we have a current capacity of approximately 20,000 tons per year, and we produced 21,500 tons of Charcoal Doctor solid product in 2015, a capacity utilization rate of 107.5%. We exceeded 100% utilization by operating this production line in excess of the assumed capacity rates. If we choose to increase our production capacity in the future, we would need to replace existing production lines with more efficient lines or to expand our space, as we have not reserved space for additional production lines. We have reserved 3,440 m2 of our Shuige Industrial Zone facility for our liquid household hygiene product and bamboo vinegar product production line, of which we currently use 1,720 m2 . The remaining 1,720 m2 is reserved for installation of a new production line. In the existing production line, we have a current capacity of approximately 5 million units per year, and we produced 3.6 million units of our liquid products in 2015, a capacity utilization rate of 72%. ITEM 4A. UNRESOLVED STAFF COMMENTS None. 72 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form 20-F. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this annual report on Form 20-F, particularly in “Risk Factors.” A. Operating Results Overview of Company Traditionally, we have been a specialized manufacturer of bamboo charcoal based products with primary business focus in consumer products and low emission BBQ charcoal. We conduct our operations in China through our wholly owned subsidiary, USCNHK in Hong Kong and its majority-owned Chinese subsidiary, Tantech Bamboo. Tantech Bamboo is engaged in the production and distribution of consumer products. Through Tantech Bamboo’s wholly-owned Chinese subsidiaries, Tantech Charcoal and Zhejiang Babiku Charcoal Co., Ltd. (“Tantech Babiku” or “Babiku”), we conduct trading business, including the export of charcoal products; and through Tantech Bamboo’s wholly-owned Chinese subsidiary, Tantech Energy, we manufacture low emission BBQ charcoal. Our subsidiary Tantech Energy was engaged in the manufacturing of Electric Double-Layer Capacitor (“EDLC”) carbon. On December 14, 2017, the Company entered into a sale agreement and related agreements to transfer its EDLC carbon business (including intellectual property rights and equipment) to Zhejiang Apeikesi Energy Co., Ltd. (the “Buyer”), a PRC start-up company controlled by Dr. Zaihua Chen, our former CTO. In the fourth quarter of 2015, we registered two Chinese subsidiary companies, Lishui Zhongzhu Charcoal Co., Ltd. (“Lishui Zhongzhu” or “Zhongzhu”) and Hangzhou Tanbo Tech Co., Ltd. (“Tanbo Tech” or “Tanbo”). Lishui Zhongzhu is engaged in the production and sales of active charcoal and other products. Tanbo Tech explores business opportunities outside Lishui area. On June 26, 2019, the Company entered a share transfer agreement to sell all of its shares in Tantech Energy to an unrelated third party. The consideration is RMB 6,500,000 (approximately US$941,000). The Company completed the disposition process in July 2019. Due to business strategy change. the Company closed Lishui Zhongzhu and Tantech Babiku during the year ended December 31, 2018. As a result, together with Tantech Energy, the assets and liabilities for these discontinued entities were reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all these discontinued operations, less applicable income taxes (benefit), were reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45. On December 31, 2019, Tantech Bamboo transferred all of its shares in its wholly-owned subsidiary Tantech Charcoal to Lishui Xincai. On January 2, 2020, Lishui Jikang Energy Technology Co., Ltd. (“Jikang Energy”) was established as a wholly owned subsidiary of Lishui Xincai with authorized share capital of RMB 5 million. Jikang Energy is a holding company and does not conduct any substantial business. On January 3, 2020, Tantech Bamboo transferred all of its shares in its wholly-owned subsidiary Tanbo Tech to Lishui Xincai. 73 On January 13, 2020, Lishui Tantech transferred all of its shares in its wholly-owned subsidiary Tantech Bamboo to Jikang Energy. After the above transfers, Tantech Bamboo becomes the wholly-owned subsidiary of Jikang Energy. Jikang Energy, Tanbo Tech and Tantech Charcoal become the wholly-owned subsidiaries of Lishui Xincai. On July 12, 2017, the Company acquired 70% of the equity interest of Suzhou Yimao E-Motors Co., Ltd., which became known as Shangchi Automobile in 2019 from its original shareholder. Shangchi Automobile is a specialty electric vehicles and battery manufacturer based in Zhang Jia Gang City, Jiangsu Province, China. After the acquisition, the Company owns a 100% equity interest of Euroasia International Capital Co., Ltd., a Hong Kong limited company (“Euroasia”) and its wholly owned subsidiary Jiamu, which further owns 100% equity interest of Jiyi. Jiyi owns a 19% of equity interest of Shangchi Automobile. In addition, Jiamu entered into a series of contractual agreements with the owners of Wangbo, which owns 51% of the equity interests of Shangchi Automobile. These agreements include a Technical Consultation and Services Agreement, a Business Cooperation Agreement, an Equity Pledge Agreement, a Share Disposal Agreement and a Voting Rights Proxy Agreement (collectively, the “VIE Agreements”). Pursuant to the above VIE Agreements, which are described in further detail below, Jiamu has the exclusive right to provide Wangbo consulting services related to business operations including technical and management services. Taken together, the VIE 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. 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”. As a result, the Company ultimately controls a 70% equity interest of Shangchi Automobile and the accounts of Shangchi Automobile are consolidated into those of the Company. Ouyatong, Jiamu, Jiyi and Wangbo are all investment holding companies with no significant business activities (collective “E-Motor Holdings”). As of December 31, 2019, the Company had three reporting segments including consumer product segment, trading segment and electric vehicle segment. Our consumer products include purification and deodorization products, cleaning products and barbecue charcoals designed for domestic market. Purification and deodorization products and cleaning products are sold under the brand name “Charcoal Doctor” and include air purification products, deodorizer and bamboo vinegar. Cleaning products include kitchen and bathroom cleaning products, personal care products and liquid detergents. Consumer products accounted for 93.0%, 70.9% and 81.6% of the total revenue for the years ended December 31, 2019, 2018 and 2017, respectively. The largest category of our consumer products is purification and deodorization products. Made from dry distilled carbonized bamboo, our purification and deodorization products have the ability to absorb harmful substances and air-borne odors, including benzene, formaldehyde, ammonia and carbon tetrachloride. These products also come in many shapes and varieties for a multitude of purposes including pillows, cushion insoles, wrist pads, clothes hangers and other products. Bamboo vinegar is an additive that can be used in food processing, medical and hygiene products and fertilizer. Although it currently only accounts for a small portion of our revenue, bamboo vinegar products are crucial for us to maintain close ties with the agricultural industry which we believe will be a key area for growth in the coming years. Cleaning products, including disinfectants, detergents, lotions, specialized soaps and toilet cleaners are relatively new in our consumer products but provide us another opportunity for growth. Purchased from third parties and sold through our distribution channel, barbecue charcoals designed for China’s domestic market have also been a key source of revenue for us in recent years. 74 Our trading business was mainly related to the export of charcoal products. We established Tantech Charcoal as a trading company for the export of our charcoal products in order to avoid mixing our export sales and our production businesses. Production businesses that are combined with export businesses typically have a higher tax rate than we pay by separating these businesses. By separating the trading business from the production business, we enjoy tax incentives and more streamlined operations. Because of our experience in trading charcoal and in order to improve our cash flows, we also engaged in rubber trading through this entity until September 2013. The profit of our trading business has been relatively low, and in September 2013, we started phrasing out our trades of rubber. While we may have sporadic trades of rubber in the future and while we are still authorized to engage in rubber trading, it will not be a focus of our Company. We are in the process to transform our business to specialty electric vehicles (EVs) market. However, we expect our sales of consumer products will stabilize in the coming years with the brand awareness and establishment for our bamboo charcoal products. Our acquisition of Shangchi Automobile completed in the second quarter of 2017 and we will focus on developing and selling specialty EVs. If our expansions into new businesses are not successful, our future results of operations and growth prospects may be materially and adversely affected. We are otherwise unaware of any specific known trends, uncertainties or events that are reasonably likely to have a material effect on our sales or revenue of consumer products. Our revenue from our trading segment is unlikely to increase significantly in future years. If we cannot increase our consumer products and electric vehicle revenues or find new business opportunities to continue the growth, our total revenue may be decreasing. Factors Affecting Our Results of Operations Government Policy May Impact our Business and Operating Results We have not seen any impact of unfavorable government policy upon our business in recent years. However, our business and operating results will be affected by China’s overall economic growth and government policy. Unfavorable changes in government policies could affect the demand for our products and could materially and adversely affect our results of operations. Our bamboo charcoal based consumer products are currently not subject to the government restrictions, however, any future changes in the government’s policy upon bamboo charcoal industry may have a negative effect on the supply of our raw materials. Price Inelasticity of Raw Materials May Reduce Our Profit As a specialized manufacturer of bamboo charcoal based products, we rely on the continuous and stable supply of bamboo charcoal to ensure our operation and expansion. Although bamboo (and as a result bamboo charcoal) is a renewable supply, price inelasticity at any given time may increase the likelihood of bidding wars, resulting in an increase in raw material prices and thus reduce our profit. In addition, as we are competing based upon low price, we will risk losing customers by increasing our selling prices. Competition in Consumer Product Our products face competition from other producers. In our consumer product segment, we face competition from a number of companies that have similar product portfolios. Many of such competitors’ products are not bamboo-based; instead, we compete based on our products’ functional use. Many such competitors are able to provide functionally similar products without relying on bamboo or bamboo charcoal components. 75 Although our Charcoal Doctor brand is one of the largest and most famous in the charcoal bag and bamboo charcoal market, the bamboo charcoal based consumer product industry is relatively fragmented and subject to relatively low barriers of entry. Our Charcoal Doctor air purification products compete with products from charcoal-based competitors such as Zhejiang Maitanweng Ecological Development Co., Ltd., Zhejiang Jiejiegao Charcoal Industry Co., Ltd., and Quzhou Modern Charcoal Industry, Co., Ltd. Our Charcoal Doctor toilet cleaner competitors include non-charcoal-based competitors such as SC Johnson & Son (Shanghai) Inc. (which makes the Mr. Muscle brand in China), Blue Moon Chinese Co., Ltd., Shanghai White Cat Group Ltd., Beijing Green Umbrella Chemical Co., Ltd. and Weilai (Guangzhou) Consumer products Co., Ltd. Our BBQ charcoals also face competition from similar products that are not made of bamboo-based charcoal. For example, our Algold grand shisha charcoal competes with Shaxian Jinlu Charcoal Factory. While our shisha charcoal is a popular bamboo-charcoal based product, the competitor product is more popular but not bamboo-charcoal based. Our other key international competitors in this area include Haiwan International Trading Co., Ltd., Nanxiong Guizhu Charcoal Co., Ltd. and Shaoguan Libao Daily Sundry Co., Ltd. In addition to these companies, we compete domestically with Fujian Zhuhai Charcoal Co., Ltd., Jiangshan Green Charcoal Co., Ltd., Pujiang Fuli Bamboo & Wood Co., Ltd. and Sanhe Senyuan Charcoal Co., Ltd. Some of our Products are Subject to Cyclical Sales. Our BBQ charcoal products and solid bamboo charcoal products are subject to cyclical sales. We typically see our highest sales of BBQ charcoal products in April and May and then again between August and October. The first peak marks our customers’ preparation for the summer outdoor barbeque season, and the second peak is related to their purchase of our BBQ charcoal products for heating and cooking indoors in the colder months. The peak season for our solid bamboo charcoal products is between October and November, and sales are lowest in February and March as a result of Chinese New Year, as consumers tend to purchase such products prior to the holiday, rather than after. While we have seen higher sales near the end of the year for our liquid products, we believe our sales volume for such products is too low to consider such fluctuations cyclical. As such products are primarily for export, demand for our liquid products is most likely to be affected by seasonal and other fluctuations in the purchasing country rather than in China. Notwithstanding the effects of seasonality, we believe the key drivers for us to maintain a competitive position in the market and positive financial performance continue to be brand recognition, product innovation and the application of new technology. COVID-19 Our operations are 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. Our business has been negatively impacted by the COVID-19 coronavirus outbreak to certain extent. 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. 76 In light of the current circumstances and available information, the Company estimated that for the period from January to May 2020, the Company’s revenues for consumer product segment could be approximately 20% lower as compared to the same period of last year, however, the sales for trading segment increased due to the significant increased demand for bamboo charcoal used for air purification and sanitation products. As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to have slowed down and most provinces and cities have resumed business activities under the guidance and support of the government. However, there is still significant uncertainty regarding the possibility of a second wave of infections, and the breadth and duration of business disruptions related to COVID-19, which could continue to have material impact to the our operations. Results of Operation The following table summarizes the selected results of our operation during the fiscal years ended December 31, 2019 and 2018, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years. (All amounts, other than percentages, in thousands of U.S. dollars) 2019 2018 Dollars in thousands $ 49,230 43,253 5,977 As a percentage of sales revenue As a percentage of sales revenue Dollars in thousands Dollar ($) Increase (Decrease) Percentage Increase (Decrease) 100% $ 87.9% 12.1% 29,561 21,532 8,029 100% $ 72.8% 27.2% 19,669 21,721 (2,052) 66.5% 100.9% (25.6)% 320 4,655 8,481 1,103 327 14,886 0.7% 9.5% 17.2% 2.2% 0.7% 30.2% 320 4,972 - - 387 5,679 1.1% 16.8% - - 1.3% 19.2% - (317) 8,481 1,103 (60) (9,207) 0.0% (6.4)% -% -% (15.5)% 162.1% Statement of Operations Data: Revenues Cost of revenues Gross profit Operating expenses Selling expenses General and administrative expenses Impairment of goodwill Impairment of intangible asset Research and development expenses Total operating expenses Income (loss) from operations (8,909) (18.1)% 2,350 7.9% (11,259) (479.1)% Other income (expenses) Interest income Interest expense Other income Total other income (expense) Income (loss) before income taxes Provision for income taxes Net income (loss) from continuing operations Net income (loss) from discontinued operations Net income (loss) Net income (loss) attributable to common stockholders of Tantech Holding Inc. 53 (443) 4 (386) (9,295) 364 (9,659) (299) (9,958) 0.1% (0.9)% 0.0% (0.8)% (18.9)% 0.7% (19.6)% (0.6)% (20.2)% 57 (626) 247 (322) 2,028 1,031 997 83 1,080 0.2% (2.1)% 0.8% (1.1)% 6.9% 3.5% 3.4% 0.3% 3.7% (4) (183) (243) (64) (7.0)% (29.2)% (98.4)% 19.9% (11,323) (667) (558.3)% (64.7)% (10,656) (382) (11,038) (1,068.8)% (460.2)% (1,022.0)% $ (6,356) (12.9)% $ 1,977 6.7% $ (8,333) (421.5)% 77 The following table summarizes the results of our operation during the fiscal years ended December 31, 2018 and 2017, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such years. (All amounts, other than percentages, in thousands of U.S. dollars) 2018 2017 Statement of Operations Data: Revenues Cost of revenues Gross profit Operating expenses Selling expenses General and administrative expenses Research and development expenses Total operating expenses Dollars in thousands $ 29,561 21,532 8,029 As a percentage of sales revenue As a percentage of sales revenue Dollars in thousands Dollar ($) Increase (Decrease) Percentage Increase (Decrease) 100% $ 72.8% 27.2% 42,298 31,742 10,556 100% $ 75.0% 25.0% (12,737) (10,210) (2,527) 320 4,972 387 5,679 1.1% 16.8% 1.3% 19.2% 731 4,626 628 5,985 1.7% 10.9% 1.5% 14.1% (411) 346 (241) (306) (30.1)% (32.2)% (23.9)% (56.2)% 7.5% (38.4)% (5.1)% Income from operations 2,350 7.9% 4,571 10.8% (2,221) (48.6)% Other income (expenses) Interest income Interest expense Other income Total other income (expense) Income before income taxes Provision for income taxes Net income from continuing operations Net income from discontinued operations Net income Net income attributable to common stockholders 57 (626) 247 (322) 2,028 1,031 997 83 1,080 0.2% (2.1)% 0.8% (1.1)% 6.9% 3.5% 3.4% 0.3% 3.7% 19 (551) 436 (96) 4,475 1,528 2,947 66 3,013 -% (1.3)% 1.0% (0.2)% 10.6% 3.6% 7.0% 0.2% 7.1% 38 (75) (189) (226) (2,447) (497) (1,950) 17 (1,933) 200% 13.6% (43.3)% 235.4% (54.7)% (32.5)% (66.2)% 25.8% (64.2)% of Tantech Holding Inc. $ 1,977 6.7% $ 3,767 8.9% $ (1,790) (47.5)% Revenues: revenues increased by approximately $19.6 million, or 66.5%, to approximately $49.2 million in fiscal 2019 from approximately $29.6 million in fiscal 2018. The increase was mainly attributable to the significant increase of our consumer products because of change of our sales strategy to lower the selling price in order to gain more market share. The revenue from our trading segment was decreased because we terminated sales cooperative agreement with one large sales channel which had negative impact of the sales in trading segment. We also had much less revenue from electric vehicle (“EV”) segment as compared to 2018 due to no active productions during fiscal 2019. We decided to pause EV productions as our costs would not be covered when we are not able to receive the government rebates to EV manufacturers timely because of the much stricter new government rebate policy issued in 2019. Revenues: revenues decreased by approximately $12.7 million, or 30.1%, to approximately $29.6 million in fiscal 2018 from approximately $42.3 million in fiscal 2017. The decrease was mainly attributable to the significant decrease of our consumer products due to change of our business strategy. The revenue from our trading segment was increase due to higher demands. We also had less revenue from electric vehicle (“EV”) segment as compared to 2017. 78 Consumer product segment Our consumer product segment is the largest among our three segments. Our revenue from consumer products was primarily generated through the sales of our purification and deodorization products and cleaning products and barbecue charcoals designed for the domestic market. Our consumer products are considered to be environmentally friendly not only because of the lifespan and fast growth rate of bamboo, but also the minimum waste in the process of producing our products. In addition, our products feature a high raw material utilization rate and have met the standards set for designation of “environmentally friendly” enterprises by the Chinese Society for Environmental Sciences. Moreover, our facilities have received ISO 14001:2004 certification, which reflects our focus on measuring and managing our environmental impact. A study conducted in Shanghai’s Lianhua Supermarket found that, given equivalent products, 85% of the consumers preferred environmentally friendly products and were willing to pay prices up to 5% higher than traditional products. We anticipate that growing consumer preferences for environmentally friendly products over traditional household cleaning products and increasing consumer awareness of our brand as an “environmentally friendly” enterprise will drive revenue from our consumer products in the coming years. Revenues from consumer product segment increased by $23.4 million, or 104.5%, to $45.8 million for fiscal 2019 from $22.4 million for the prior fiscal year. The gross margin of consumer product segment decreased from 35.9% in fiscal 2018 to 12.4% in fiscal 2019. The increase in our revenue from consumer product segment in 2019 was mainly because we changed our sales strategy to lower the sales price in order to increase the competitive advantages and increase the sales volume, which resulted in a much higher increase in sales volume but with lower profit margin. Revenues from consumer product segment decreased by $9.5 million, or 29.8%, to $22.4 million for fiscal 2018 from $31.9 million for the prior fiscal year. The gross margin of consumer product segment increased from 25.7% in fiscal 2017 to 35.9% in fiscal 2018. The decrease in our revenue from consumer product segment in 2018 was due to the following reasons. First, as a result of the increasing competition from E-commerce and change of shopping habits among younger consumers, people are increasingly buying consumer products online with unknown brands in order to save money. Therefore, orders from the Company’s customers for its consumer products decreased considerably. Second, in 2018, the Company reduced the cooperation with certain supermarket customers with low selling price and unfavorable profit margin. And third, in response to market competition, the Company also reduced the selling for non-popular products with lower gross margin. The overall decrease in the Company’s revenue from consumer product segments reflected the above factors. Trading segment Revenue from our trading segment was approximately $3.4 million in fiscal 2019, a decrease of 10.5% from $3.8 million in fiscal 2018. The decrease was mainly attributed to we terminated sales cooperative agreement with one large sales channel due to very low gross margin. As a result, even with deceased sales volume, we were able to sell for higher selling price which led to much higher gross profit and gross margin in our trading segment in fiscal 2019 as compared to fiscal 2018. The gross margin of trading segment increased from 12.9% in fiscal 2018 to 32.8% in fiscal 2019. Revenue from our trading segment was approximately $3.8 million in fiscal 2018, an increase of 106% from $1.9 million in fiscal 2017. Starting in fiscal 2017, the Company focused on promoting “Charcoal Doctor” products in the market. As a result, our domestic sales of “Charcoal Doctor” products increased significantly. The decline in gross margin in fiscal 2018 comparing to fiscal 2017 was due to the fact that almost all our sales were made to domestic market which have lower margins. 79 Electric Vehicle (“EV”) segment On July 12, 2017, the Company completed the acquisition of 70% of the equity interest of Suzhou E-Motors, which became known as Shangchi Automobile in 2019, a specialty electric vehicles and power batteries manufacturer based in Zhang Jia Gang City, Jiangsu Province, People’s Republic of China. The Company believes that the acquisition brings new advanced technologies and economic synergies in electric vehicle market and broaden the Company’s customer base and cross-selling opportunities. The revenue for our EV segment was approximately $0.03 million in fiscal 2019 with a negative gross margin. The revenue was all from the commission income in connection to the 117 electronic logistic cars the Company sold on behalf of other manufacturers in fiscal 2019. The Company is eligible for a government manufacturing rebate on each qualifying electric bus 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. We have been experiencing delays of government rebate processing time and reduction of the amount of government rebates on eligible vehicles. Accordingly, we paused our production of electric vehicles in 2019. The revenue for our EV segment was approximately $3.4 million in fiscal 2018 with negative gross margin of 14.7%. The Company sold 110 electronic cars in fiscal 2018. Cost of revenues: Our cost of revenues increased by approximately $21.7 million or 100.9% to approximately $43.2 million in fiscal 2019 from approximately $21.5 million in fiscal 2018. As a percentage of revenues, the cost of revenue increased to 88% in fiscal 2019 from 73% in fiscal 2018. The increase in cost of revenues as a percentage of revenues in fiscal 2019 was mainly attributable to the increased cost of revenues from our consumer products segment due to higher sales volume with lower average selling price. Our cost of revenues decreased by approximately $10.2 million or 32.2% to approximately $21.5 million in fiscal 2018 from approximately $31.7 million in fiscal 2017. As a percentage of revenues, the cost of revenue decreased to 73% in fiscal 2018 from 75% in fiscal 2017. The decrease in cost of revenues as a percentage of revenues in fiscal 2018 was mainly attributable to the lower cost of revenues from our consumer products and EV segment due to lower sales. On the other side, the cost of revenue for trading segment increased to be in line with the increased sales. Gross profit: Our gross profit decreased by approximately $2.0 million, or 25.6% to approximately $6.0 million in fiscal 2019 from approximately $8.0 million in fiscal 2018. The gross profit margin was 12.1% in fiscal 2019, as compared to 27.2% in fiscal 2018. On segment basis, gross margins for consumer product, trading and EV segments were 12.4%, 32.8%, and (2,740.4)%, respectively, for fiscal 2019, compared to 35.9%, 12.9%, and (14.7)%. respectively, for fiscal 2018. The significant decrease of gross margin for EV segment was because we only earned commission income in connection to the 117 electronic logistic cars sold on behalf of other vehicle manufacturers in fiscal 2019. The decrease in overall gross margin was primarily attributable to the lower selling price related to consumer product segment in fiscal 2019, compensated by higher selling price for our trading segment. Our gross profit decreased by approximately $2.5 million, or 23.9% to approximately $8.0 million in fiscal 2018 from approximately $10.5 million in fiscal 2017. The gross profit margin was 27.2% in fiscal 2018, as compared to 25.0% in fiscal 2017. On segment basis, gross margins for consumer product. Trading and EV segment were 35.9%, 12.9%, and (14.7)%, respectively, for fiscal 2018, compared to 25.7%, 22.8% and 22.6%. respectively, for fiscal 2017. The decrease in gross margin was primarily attributable to the lower selling price related trading segment and our EV segment in fiscal 2018. 80 Selling expenses: Selling expenses were approximately $0.3 million in fiscal 2019 and approximately $0.3 million in fiscal 2018. As a percentage of sales, our selling expenses were 0.7% of revenues in fiscal 2019, as compared to 1.1% of revenues in fiscal 2018. Selling expenses decreased by approximately $0.4 million to approximately $0.3 million in fiscal 2018 compared to approximately $0.7 million in fiscal 2017. As a percentage of sales, our selling expenses was 1.1% of revenues in fiscal 2018, as compared to 1.7% of revenues in fiscal 2017. The decrease of the selling expenses was mainly attribute to the decreased sales. General and administrative expenses: Our general and administrative expenses decreased by approximately $0.3 million or 6.4%, to approximately $4.6 million in fiscal 2019 from approximately $4.9 million in fiscal 2018. As a percentage of revenues, general and administrative expenses decreased to 9.5% in fiscal 2019, compared to 16.8% in fiscal 2018. The decrease was primarily attributable to the following factors: · Property insurance expenses were decreased by approximately $0.3 million as compared to fiscal 2018; · Maintenance and repair expenses were decreased by approximately $0.3 million for as compared to fiscal 2018; Offset by: · The decreased consulting expenses of approximately $0.3 million as compared to fiscal 2018. Our general and administrative expenses increased by approximately $0.3 million or 7.5%, to approximately $4.9 million in fiscal 2018 from approximately $4.6 million in fiscal 2017. As a percentage of revenues, general and administrative expenses increased to 16.8% in fiscal 2018, compared to 10.9% in fiscal 2017. The slight increase was primarily attributable to the following factors: · We recorded approximately $2.1 million as bad debt expenses for accounts receivable, advances to suppliers and other receivable. In fiscal 2017, we recorded bad debt expense related to accounts receivable by approximately $2.6 million, but decreased the bad debt expenses related to advance to suppliers by $1.0 million; and · We also recorded approximately $0.7 million as inventory reserve. Impairment of goodwill The Company wrote off the goodwill $8.5 million which is mainly attributable to the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors) in fiscal 2017 due to sluggish business operations and continuous losses incurred. 81 Impairment of intangible asset For the year ended December 31, 2019, the Company recorded an impairment of $1.1 million for the licenses and permit resulted from the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors) in fiscal 2017. Research and development expenses Research and development expenses decreased by $0.1 million, or 15.5%, to $0.3 million in fiscal 2019 from $0.4 million in fiscal 2018. The decrease was primarily due to less R&D activities during fiscal 2019 as we had limited activities for our electric vehicle segment. Research and development expenses decreased by $0.2 million, or 38.4%, to $0.4 million in fiscal 2018 from $0.6 million in fiscal 2017. The decrease was primarily due to less R&D activities during fiscal 2018 due to change of business strategies. Total operating expenses Total operating expenses increased by $9.2 million, or 162.1%, to $14.9 million for fiscal 2019 from $5.7 million in fiscal 2018, which was mainly due to an increase of approximately $9.6 million in impairment of goodwill and intangible asset for fiscal 2019 compared to fiscal 2018. Total operating expenses decreased by $0.3 million, or 5.1%, to $5.7 million for fiscal 2018 from $6.0 million in fiscal 2017, which was mainly due to a decrease of approximately $0.2 million in general and administrative expenses and approximately $0.2 million on R&D expenses, and offset by the increase of selling expenses of approximately $0.1 million for fiscal 2018 compared to fiscal 2017. Interest expenses Our interest expenses decreased by approximately $0.19 million, or 29.2% to approximately $0.44 million in fiscal 2019, from approximately $0.63 million in fiscal 2018. As the outstanding days of short-term bank loans in fiscal 2019 are less than that in fiscal 2018, we had less interest expenses accrued for bank loans in fiscal 2019 compared to fiscal 2018. Our interest expenses increased by approximately $0.08 million, or 13.6% to approximately $0.63 million in fiscal 2018, from approximately $0.55 million in fiscal 2017. As the outstanding days of short-term bank loans in fiscal 2018 are more than that in fiscal 2017, we had more interest expenses accrued for bank loans in fiscal 2018 compared to fiscal 2017. Other Income Other income was $nil in fiscal 2019 and approximately $0.2 million in fiscal 2018. Other income generated in fiscal 2018 was primarily related to the consulting fee that we charged to a third-party company using our patent in its production of doors with air treatment functionality. Other income was approximately $0.2 million in fiscal 2018 and $0.4 million in fiscal 2017. Other income was primarily related to the consulting fee that we charged to a third party company using our patent in its production of doors with air treatment functionality. 82 Income before income taxes from continuing operations Our loss before income tax from continuing operations was approximately $9.3 million in fiscal 2019, a decrease of approximately $11.3 million compared to income of approximately $2.0 million in fiscal 2018. The increase was primarily attributable to an increase of approximately 9.2 million in operation expenses compared to fiscal 2018. Our income before income tax from continuing operations was approximately $2.0 million in fiscal 2018, a decrease of approximately $2.5 million compared to income of approximately $4.5 million in fiscal 2017. The decrease was primarily attributable to a decrease of approximately 2.5 million in gross profit compared to fiscal 2017. Provision for income taxes Our provision for income taxes was approximately $0.4 million in fiscal 2019, a decrease of approximately $0.7 million or 64.7% from approximately $1.0 million in fiscal 2018. The decrease was mainly due to significant losses before income taxes from continuing operations in fiscal 2019 comparing to fiscal 2018. Our provision for income taxes was approximately $1.0 million in fiscal 2018, a decrease of approximately $0.5 million or 32.5% from approximately $1.5 million in fiscal 2017. The decrease was mainly due to lower income before income taxes from continuing operations in fiscal 2018 comparing to fiscal 2017. The Company provided full valuation allowance in fiscal 2018 on bad debt reserves due to uncertainties in realizing those tax benefits in future. Net income (loss) from discontinued operations As of December 31, 2019, we closed Tantech Babiku and Lishui Zhongzhu, and we also sold Tantech Energy because of business strategy change. The net loss for these discontinued operations was approximately $0.3 million in fiscal 2019 compared to a net income approximately $0.08 million in fiscal 2018 There was a net income of approximately $0.07 million in fiscal 2017. Net income attributable to common stockholders Our net loss attributable to common stockholders was approximately $6.3 million in fiscal 2019, a decrease of approximately $8.3 million from net income attributable to common stockholders approximately $2.0 million in fiscal 2018. The decrease was attributable to the factors described above. Our net income attributable to common stockholders was approximately $2.0 million in fiscal 2018, a decrease of approximately $1.8 million from approximately $3.8 million in fiscal 2017. The decrease was attributable to the factors described above. 83 B. Liquidity and Capital Resources We are a holding company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of its after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. We have relied on direct payments of expenses by our subsidiaries (which generate revenues), to meet our obligations to date. For the years ended December 31, 2019, the Company had a significant increase in revenue from its consumer product segment. To react to this competition, the Company closed Liushui Zhongzhu and Tantech Babiku during Fiscal 2018 and also sold Tantech Energy as one of the moves for business strategy changes. All of these events had and will continue to have significant impact on the Company’s operations. For its consumer product sector, the Company significantly cut its sales to supermarket customers because of long-aged accounts receivable from these supermarket customers as online shopping has become increasingly popular. The Company has been experiencing longer sales and collection periods while pushing back on the delivery of raw materials for production. That leads to higher balances of accounts receivable and advances to suppliers as compared to prior years. Meanwhile, the newly acquired EV sector is also experiencing delays of government rebate processing time and reduction of the amount of government rebates on eligible vehicles due to recent policy changes. Due to a successful equity financing which resulted in net proceeds of $5.6 million in September 2017, the Company still had approximately $12.4 million cash on hand as of December 31, 2019. Although the Company maintains a positive working capital as of December 31, 2019 and generated positive cash flows from its continued operations during the year ended December 31, 2019, 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 new EV business. Without additional equity financing, the Company may heavily rely on bank borrowings or shareholder/related party loans to fund its working capital needs. As of December 31,2019 and 2018, the Company had a short-term loan balance of approximately $6.9 million and $7.7 million, respectively. In addition, the Company had bank acceptance note payable balance of approximately $0.2 million and $2.1 million as of December 31, 2019 and 2018, respectively. Any failure to renew these bank borrowings upon their maturities could have an adverse impact on the Company’s operations. The Company currently plans to fund its operations mainly through cash flow from its operations, 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 other customers and suppliers and expects to fully collect or utilize the rest of prepayment balance in 2019. 84 The Company is also working closely with the local government to speed up the collection process of the outstanding government rebate balance in 2020. With disposal of its EDLC business and placing focus on manufacturing of more marketable consumer products, the Company is shifting its strategy to cut back costs and ensure profitability. Although the Company is currently not generating net income from its EV sector, it has been focusing on reducing the costs and expenses and developing other non-rebate alternative energy products. The Company plans to fund this sector through additional private placement and continued support from the parent company even without timely receipt of government rebate. The principal shareholder of the Company, along with the affiliated entity, Forasen Group, has made pledges 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. Further, although instruments governing the current debts incurred by our PRC subsidiaries do not have restrictions on their abilities to pay dividend or make other payments to us, the lender may impose such restriction in the future. As a result, our ability to distribute dividends largely depends on earnings from our PRC subsidiaries and its ability to pay dividends out of its earnings. We cannot assure you that our PRC subsidiaries will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends. As of December 31, 2019, we had cash and cash equivalents of approximately $12.6 million. Our current assets were approximately $68.2 million and our current liabilities were approximately $19.1 million, which resulted in a current ratio of 3.6:1, increased from 3.2:1 in fiscal 2018. Total shareholders’ equity as of December, 31 2019 was approximately $94.5 million. Our accounts receivable turnover in days were 269 days and 477 days for fiscal 2019 and 2018, respectively. Although we typically do not grant special payment terms to our customers, some of our customers, who are large retailers and wholesale chains, tend to require longer payment terms but are unlikely to default. The instances of slow payments and long-aging receivables may have negative impact on our short-term operating cash flow and future liquidity. We periodically review our accounts receivable and allowance level in order to ensure our methodology used to determine allowances is reasonable and accrued additional allowances if necessary. We have recently put a lot of efforts into accounts receivable collection through tightening our customer credit policy and strengthening monitoring of uncollected receivables. If the Company has difficulty collecting, the following steps will be taken, including but not limited to: cease any additional shipments to the customers, visit the customers to request payments on past due invoices, and if necessary, take legal recourse. If all of these steps are unsuccessful, management will determine whether or not the receivable will be reserved or written off. For the accounts receivable from continuing operations, the Company provided bad debt allowance of $5.7 million against the aged accounts receivable balances. Subsequent to December 31, 2019 and through June 23, 2020, the Company collected $13.0 million or 29% of the accounts receivable balance from continuing businesses as of December 31, 2019. As of December 31, 2019 and 2018, the Company had significant advances to suppliers of approximately $13.1 million and 14.4 million, respectively. 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. Due to recent tighten environmental protection policies in China, many smaller suppliers have gone out of business. The Company monitors the advances to suppliers account and the allowance level periodically in order to ensure the related allowance is reasonable. We have since enhanced our collections or realization on advance to suppliers through tightening vendor prepayment policy and strengthening monitoring of unrealized prepayment. If the Company has difficulty collecting, the following steps will be taken: cease additional purchases from these suppliers, visit the suppliers to request return of the prepayments promptly, and if necessary, take legal recourse. If all of these steps are unsuccessful, management will determine whether or not the prepayment will be reserved or written off. 85 The following table sets forth summary of our cash flows for the fiscal years indicated: (All amounts in thousands of U.S. dollars) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash Cash, beginning of year Cash, end of year Operating Activities 2019 2018 2017 14,696 $ (5,930) (5,460) (530) 2,776 9,870 12,646 $ 14,665 $ (17,995) (810) 391 (3,749) 13,619 9,870 $ 2,151 (3,493) 8,336 424 7,418 6,201 13,619 $ $ Net cash provided by operating activities was approximately $14.7 million in fiscal 2019, compared to cash provided by operating activities of approximately $14.7 million in fiscal 2018. The change in net cash provided by operating activities was primarily attributable to the following factors: · · · · · Non cash adjustment of $13.7 million, which primarily consisted of $9.6 million impairment of goodwill and intangible assets, $1.3 million bad debt provision for accounts receivable and $1.0 million inventory provision The company received $9.0 million from disposition subsidiary. An increase of $6.2 million in customer deposits received for future customer orders A reduction of $1.6 million on manufacturing rebate receivable due to collection Net cash flow provided by operation activities from discontinued operation amounted to $4.6 million Offset by the impacts from the following factors: · · An increase of $9.9 million in accounts receivable due to more sales in fiscal 2019 The Company had a net loss of $9.6 million in fiscal 2019, decreased by $10.7 million compared to fiscal 2018. Net cash provided by operating activities was approximately $14.7 million in fiscal 2018, compared to cash provided by operating activities of approximately $2.3 million in fiscal 2017. The increase in net cash provided by operating activities was primarily attributable to the following factors: · · a reduction in accounts receivable of approximately $10.3 million due to collection efforts. In fiscal 2018, the Company provided bad debt reserve for accounts receivable of approximately $0.9 million, bad debt reserve for advance to supplier of approximately $0.8 million, and bad debt reserve for other receivables and due from related parties of approximately $0.4 million. The Company also had an inventory reserve of approximately $0.7 million in fiscal 2018. Offset by the impacts from the following factors: · · the Company had a net income of $1.1 million in fiscal 2018, decreased by $1.9 million compared to fiscal 2017. a reduction of accounts payable of approximately $2.8 million and an increase of advance to suppliers of approximately $2.0 million in fiscal 2018. 86 Net cash used in investing activities was $5.9 million for fiscal 2019, compared to net cash used in investing activities of $18.0 million in fiscal 2018. The decrease in net cash used in investing activities in fiscal 2019 was primarily attributable the payment of $6.7 million paid to acquire 18% of the equity interest of Fuquan Chengwang, a wholly-owned subsidiary of Jingning Zhonggang. The net cash used in investing activities in fiscal 2018 was primarily attributable the payment of $17.4 million paid for acquisition of all of the shares of Lishui Xincai, a wholly-owned subsidiary of Shanghai Shicai. Net cash used in investing activities was $18.0 million for fiscal 2018, compared to net cash used in investing activities of $3.5 million in fiscal 2017. The increase in net cash used in investing activities in fiscal 2018 was primarily attributable the payment of $17.4 million paid for acquisition of all of the shares of Lishui Xincai Industrial Co., Ltd. (“Lishui XinCai”), a wholly-owned subsidiary of Shanghai Shicai, The net cash used in investing activities in fiscal 2017 was primarily attributable to $4.5 million paid for acquisition of Shangchi Automobile. Net cash used in financing activities was $5.5 million for fiscal 2019, compared to net cash used in financing activities of $0.8 million for fiscal 2018. Net cash used in financing activities for fiscal 2019 primarily due to net repayment of approximately $2.8 million for third party, repayment of approximately $1.8 million for bank acceptance notes payable, and net repayment of $0.4 million of related parties. Net cash used in financing activities was $0.8 million for fiscal 2018, compared to net cash provided by financing activities of $8.3 million for fiscal 2017. Net cash used in financing activities for fiscal 2018 primarily due to net proceeds of approximately $2.4 million received from bank loans, proceeds of approximately $2.4 million from third party, offset by net repayment of $4.6 million of bank acceptance note payable. Our primary source of cash is currently generated from the sales of our products and bank borrowings. In the coming years, we will be looking to other sources, such as raising additional capital by issuing shares of our common stock to meet our cash needs. While facing uncertainties in regards to the size and timing of capital raise, we expect to be able to meet our working capital and capital expenditure requirements by using our cash on hand, cash flows from operations and bank borrowings in the next twelve months. Loan Facilities As of December 31, 2019, the balance of our bank loans was approximately $6.9 million. Our outstanding balance of bank acceptance notes was $0.2 million as of December 31, 2019. As of December 31, 2019, the details of all our short-term bank loans are as follow: No. 1 2 Type Short-term bank loan Short-term bank loan 3 Short-term bank loan Contracting Party Bank of China Bank of China Shanghai Pudong Development Bank Valid Date February 27, 2019 March 18, 2019 Duration Amount 12 months $ 12 months 1,436,000 2,696,808 November 04, 2019 6 months $ 2,728,400 87 All above loans were fully repaid upon maturity, and the Company was able to renew the loans as follows: On January 6, 2020, Tantech Bamboo entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $2.6 million (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 $3.9 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 Lishui Jiuanju Trading Co., Ltd., the president of which was also the present CEO and previous COO of the Company. On January 6,2020, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $1.4 million (RMB 10 million) for one year with annual interest rate of 4.30%. 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 a third party, Zhejiang Meifeng Tea Industry Co., Ltd. The loan was also collateralized by two properties owned by Zhengyu Wang and Yefang Zhang. On April 27, 2020, Tantech Bamboo entered into a short-term loan agreement with Shanghai Pudong Development Bank to borrow approximately $2.7 million (RMB 19 million) for one year with fixed annual interest rate of 4.785%. The purpose of the loan is to fund working capital needs. The loan was guaranteed by three related parties, Zhengyu Wang, Chairman of the Board and previous CEO and his wife, Yefang Zhang and Forasen Group Co., Ltd., a company owned by Zhengyu Wang and Yefang Zhang. Although we currently do not have any material unused sources of liquidity, giving effect to the foregoing bank loans and other financing activities, we believe that our currently available working capital should be adequate to sustain our operations at our current levels through at least for the next twelve months. We will consider additional borrowing or public offering based on our working capital needs and capital expenditure requirements. There is no seasonality of our borrowing activities. Statutory Reserves Under PRC regulations, all our subsidiaries in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC GAAP. In addition, these companies are required to set aside at least 10% of their after-tax net profits each year, if any, to fund the statutory reserves until the balance of the reserves reaches 50% of their registered capital. The statutory reserves are not distributable in the form of cash dividends to the Company and can be used to make up cumulative prior year losses. Restrictions on net assets also include the conversion of local currency into foreign currencies, tax withholding obligations on dividend distributions, the need to obtain State Administration of Foreign Exchange approval for loans to a non-PRC consolidated entity. We did not have these restrictions on our net assets as of December 31, 2019 and December 31, 2018. We are also a party to certain debt agreements that are secured with pledges on our real property in Shuige Industrial Zone facility located in Lishui, China. But such debt agreements do not restrict our net assets and instead only impose restrictions on the pledged property. The following table provides the amount of our statutory reserves, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of December 31, 2019 and December 31, 2018. Statutory Reserves Total Restricted Net Assets Consolidated Net Assets Restricted Net Assets as Percentage of Consolidated Net Assets 88 As of December 31, 2019 6,379,276 6,379,276 94,532,261 $ $ $ $ $ $ 6.7% As of December 31, 2018 6,461,788 6,461,788 109,985,014 5.9% Total restricted net assets accounted for approximately 6.7% of our consolidated net assets as of December 31, 2019. As our subsidiaries usually set aside only 10% of after-tax net profits each year to fund the statutory reserves and are not required to fund the statutory reserves when they incur losses, we believe the potential impact of such restricted net assets on our liquidity is limited. Total restricted net assets accounted for approximately 5.9% of our consolidated net assets as of December 31, 2018. As our subsidiaries usually set aside only 10% of after-tax net profits each year to fund the statutory reserves and are not required to fund the statutory reserves when they incur losses, we believe the potential impact of such restricted net assets on our liquidity is limited. Capital Expenditures We had capital expenditures of $6.8 million, $18.3 million and $5.4 million for the years ended December 31, 2019, 2018 and 2017, respectively for the addition and renovation of our workshops and office buildings; purchasing of equipment in connection with our business activities. We expect that our capital expenditures will increase in the future as our business continues to develop and expand. We have used cash generated from our subsidiaries’ operations to fund our capital commitments in the past and anticipate using such funds and proceeds received from our initial public offering, our secondary offering and other sources to fund capital expenditure commitments in the future. E. Off-balance Sheet Arrangements We provided a guaranty on behalf of Forasen Group’s outstanding line of credit of RMB 57,070,000 (equivalent to $8,195,252) by pledging our building with a net book value of approximately $6.4 million as the collateral for the loan and notes. The guaranty will be expired on July 23, 2020. As of today, no additional guarantee was made by the Company. Except for the above-mentioned guaranty, we have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Critical Accounting Policies We prepare our financial statements in conformity with accounting principles generally accepted by the United States of America (“U.S. GAAP”), which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there was no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. 89 Discontinued operation In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205- 20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations (which we presented as operations to be disposed and operations disposed), less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45. 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 purchase price allocation, the useful lives of property and equipment; allowances pertaining to the allowance for doubtful accounts and advances to related parties and suppliers; the valuation of inventories; and the realizability of deferred tax assets. Business Combinations Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition. Revenue Recognition The Company adopted ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”) on January 1, 2018 using the modified retrospective approach. Revenues for the year ended December 31, 2019 were presented under ASC 606, and revenues for the years ended December 31, 2017 were not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. 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). 90 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 is eligible for a government manufacturing rebate on each qualifying electric bus 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. 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. 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 Group 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. 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. 91 In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for adjustments to tax effects that were originally recorded in other comprehensive income due to changes in the U.S. federal corporate income tax rate resulting from the enactment of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Company does not believe this guidance has a material impact on its consolidated financial statements. In March 2018, the FASB issued ASU 2018-05— Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for many companies that operate internationally. The Company does not believe this guidance has a material impact on its consolidated financial statements. On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share- Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018- 07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The new standard is effective for us on January 1, 2019. Early adoption is permitted, including in interim periods, and should be applied to all new awards granted after the date of adoption. The Company does not believe this guidance has a material impact on its consolidated financial statements. In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements. 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 is currently evaluating the effect of adopting this ASU on the Group’s financial statements. 92 Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial position, statements of operations and cash flows. F. Tabular Disclosure of Contractual Obligations Below is a table setting forth all of our contractual obligations as of December 31, 2019, which consists of our short-term loan agreements, loans from third parties and due to related parties: Contractual Obligations Short-Term Debt Obligations Bank Acceptance Notes Payable Due to third parties Due to related parties Total G. Safe Harbor Total 6,861,208 $ 205,520 287,200 1,626,120 8,980,048 $ $ $ Less than 1 year Payment Due by Period 1 – 3 years 3 – 5 years More than 5 years 6,861,208 $ 205,520 287,200 1,626,120 8,980,048 $ - $ - - - - $ - $ - - - - $ - - - - - See “Special Note Regarding Forward-Looking Statements.” ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table provides information regarding our executive officers and directors as of June 30, 2020: Name Wangfeng Yan Weilin Zhang Mingqin Dong Zhengyu Wang Yefang Zhang Wencai Pan Hongdao Qian Shudong Wang Position(s) Age 43 51 30 51 53 43 56 70 Chief Executive Officer Chief Financial Officer Chief Operating Officer Chairman of Board of Directors Director Director (Independent) Director (Independent) Director (Independent) 93 Wangfeng Yan has served as our Chief Executive Officer since December 2019. He was our Chief Operating Officer from March 2018 to December 2019. Mr. Yan joined Tantech Holdings (Lishui) Co., Ltd. (formerly Zhejiang Tantech Bamboo Technology Co., Ltd.) (“Tantech Bamboo”) as a member of the production staff in August 2010 and rose to serve as the head of production managers. Prior to being appointed as Chief Operating Officer, Mr. Yan was in charge of production management for Tantech Bamboo and Tantech Energy. In these capacities, Mr. Yan contributed to the “Dr. Charcoal” brand sales channel development. In June 2010, Mr. Yan earned a Bachelor’s Degree in Engineering from Zhejiang Sci-tech University in Hangzhou. Weilin Zhang has served as our Chief Financial Officer since July 2019. Prior to being appointed as CFO, Mr. Zhang has been serving as the CFO of Forasen Group Ltd. Co. since October 2018 and was its CFO from March 2008 and June 2013. From July 2013 to September 2018, he was the general manager of Zhejiang Juma Valve Ltd. Co. Currently he is a director of Zhejiang Juma Valve Ltd. Co. He graduated from Zhejiang Province Finance Institute in 1989 and studied accounting at Beijing Industry and Commerce College from 2004 to 2008. Mingqin Dong has served as our Chief Operating Officer since December 2019. He has been the Chairman and the general manager of Shangchi Automobile, our 70% owned subsidiary, since June 2017. From August 2013 to June 2017, Mr. Dong was a project manager of us. In June 2013, Mr. Dong earned his Bachelor’s Degree in Computer and Science Technology from Heilongjiang International University. Zhengyu Wang is a seasoned veteran in business and high-tech agricultural products. He founded Tantech Bamboo in October 2002 (then known as Lishui Zhonglin High Tech Co., Ltd.) and he has served as Chairman and CEO ever since. From November 1998 until April 2003, he was General Manager of Lishui Forasen Foodstuff Co., Ltd. Prior to that, from 1994 to 1997, he served as General Manager of Lishui Jingning Huali, Co., Ltd. From 1990 to 1994, he served as a board member of the Lishui Farmer’s Economic Committee. In addition to his efforts with our Company, Mr. Wang also manages the business operations of Forasen Group, a company he owns with his wife and our director, Ms. Yefang Zhang. Forasen Group is a PRC company with several subsidiaries that are engaged in a variety of businesses, including without limitation rubber trading, mushroom sales, biomass power generation, and marketing. In addition, since February 2017, Mr. Wang has served as a director of Farmmi, Inc., another Nasdaq listed company since February 2018. He has been the executive director and/or general manager of various subsidiary companies under us and charcoal business related companies. Mr. Wang has also been the Chairman of Daxing’anling Hualin Investment Management Ltd. Co. since November 2011 and Daxing’anling Forasen Energy Technology Ltd. Co. since March 2009, and the executive director and general manager of Harbin Forasen Energy Technology Ltd. Co. since December 2013, and of Hangzhou Xinying Industrial Co., Ltd. since December 2013. He earned his Bachelor’s Degree in Biology from Zhejiang University in Hangzhou, China in June 1990. He has been appointed as a director because, as our founder, he has significant experience in leading and advising our Company and understands our industry. 94 Yefang Zhang has been in leadership roles for over a dozen years. She then helped to found Forasen Group Co., Ltd in October 2002 and has served as a Board member since then. Since July 2015, she has been Chairwoman and CEO of Farmmi, Inc., another Nasdaq listed company. From 1997 until 2002, she worked as General Manager at Zhejiang Forasen Food Co., Ltd. From 1994 to 1997, she served as Vice General Manager of Lishui Jingning Huali Co., Ltd. From 1991 to 1994, she was a teacher at Wenzhou Huangtan Middle School. From 1990 to 1994, she served on the board of Lishui Farmer’s Economic Committee. In addition to her efforts with our Company, Ms. Zhang also manages the business operations of Forasen Group, a company she owns with her husband and our Chairman, Mr. Zhengyu Wang. Forasen Group is a PRC company with several subsidiaries that are engaged in a variety of businesses, including without limitation rubber trading, mushroom sales, biomass power generation, and marketing. She earned her Bachelor’s Degree in Geography from Wenzhou Teacher’s College in July 1991. We have appointed Ms. Zhang to be a director due to her strong understanding of our industry and business. Wencai Pan has been our director since 2014. He has served as the CFO of Shandong Xiangrui Pharmacy Co. Ltd., which was listed in the US under SMSA Treemont Acquisition Corp. from 2011 through present. From 2007 through 2010, Mr. Pan was the China controller for Aramex Express Logistics Services (Shanghai) Co. Ltd., a global logistics and transportation company from 2007 to 2010, as controller for its China operations and was based out of Shanghai. During 2006, Mr. Pan had been employed as a consultant by the Centergate Securities Bankruptcy Committee, which was set up by the China Securities Regulatory Commission, where he assisted on bankruptcy audits on Centergate Securities Ltd. Co. Previously, Mr. Pan served as the finance manager for Shera International Limited, a technology product development, production and distribution company, from 2004 until the end of 2005 and was based out of Shanghai. Mr. Pan was employed as an internal auditor by Valley National Bank, located in Wayne, New Jersey, U.S., from 2003 to 2004. None of Mr. Pan’s previous employers is a parent, subsidiary or other affiliate of the Company. Mr. Pan obtained a Masters in Professional Accountancy from The University of Utah, in 2003. In 1998, Mr. Pan received a bachelor’s degree in Economics from The University of International Business & Economics, Beijing, China. Mr. Pan passed the Chinese CPA exam in 1997 and passed the Uniform CPA exam in the United States in 2002. We have chosen Mr. Pan to serve as a director because of his experience with US GAAP and with United States compliance issues. Hongdao Qian has been our director since 2014. He has been a Professor on the faculty of the Guanghua Law School at Zhejiang University since September 2005. His research, writing and teaching focuses on corporate governance, economic analysis of law and Western jurisprudence. Prior to joining Guanghua Law School, Mr. Qian was a Professor at the Institute of Law, China Academy of Social Sciences; a Lecturer in Economics at Peking University and a Prosecutor in the People’s Procuratorate of Zhejiang Province. Mr. Qian was a visiting scholar at Waseda University in Japan, Stanford University in California and both Oxford and Cambridge Universities in England. Since July 2017, he has been an independent director of Farmmi, Inc, another Nasdaq listed company. He currently serves as Vice Chairman of the Chinese Society of Comparative Law, Executive Subeditor of the China Academic Yearbook and President of the China Rule of Law Research Institute, where he has organized a team of scholars to create China’s first Rule of Law index using empirical methods. Mr. Qian earned his bachelor of law from Jilin University in 1986, his master of law from North-West University of Politics and Law in 1994 and his doctor of law from Peking University in 1997. We have chosen Mr. Qian to serve on our Board of Directors because of his expertise in economics and law. Shudong Wang has been our director since 2014. He was the department director at the China National Bamboo Research Center from 1996 through his retirement in 2012. He earned his bachelor’s degree in forestry from Northeast Forestry University in Heilongjiang in 1976. He once served as deputy director of Bamboo Branch of the Academic Committee of China Forestry. He has also served as executive director of South-South Cooperation Association and the Center of China International Exchange. He is a science advisor to the State Forestry Bureau. We selected Mr. Wang to serve on our Board of Directors because of his expertise in the bamboo industry in China. B. Compensation EXECUTIVE COMPENSATION Our compensation committee approves our salary and benefit policies. Before our initial public offering, our board of directors determined the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers’ to our success. Each of the named officers are measured by a series of performance criteria by the board of directors, or the compensation committee on a yearly basis. Such criteria are set forth based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance. 95 The board of directors makes an independent evaluation of appropriate compensation to key employees, with input from management. The board of directors has oversight of executive compensation plans, policies and programs. Summary Compensation Table The following table presents summary information regarding the total compensation awarded to, earned by, or paid to each of the named executive officers for services rendered to us for the years ended December 31, 2019, 2018 and 2017. Wangfeng Yan(3) Former Chief Operating Officer and current Chief Executive Officer Zhengyu Wang(4) Former Chief Executive Officer Weilin Zhang(5) Current Chief Financial Officer Jing Jin(6) Former Chief Financial Officer Mingqin Dong(7) Current Chief Operating Officer Zaihua Chen(8) Chief Technical Officer Fiscal Year Salary ($) Bonus ($) (1) 2019 26,536 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 21,911 — 32,132 35,054 35,054 21,911 — — 24,000 48,000 48,000 2,191 — — — — 26,291 All Other Compensation ($) (2) Total ($) 820 27,356 678 — 994 1,084 1,084 678 — — — — — 67.8 — — — — 813 22,589 — 33,126 36,138 36,138 22,589 — — 24,000 48,000 48,000 2,259 — — — — 27,104 — — — — — — — — — — — — — — — — — — (1) No officer received a bonus in 2019, 2018 and 2017. (2) Consists of social security payments required under Chinese law. Although we also reimburse the referenced individuals for reasonable expenses, such reimbursements do not, in the aggregate, exceed $10,000 for any individual in any year presented and are not considered perquisites because they are integrally and directly related to the performance of such recipients’ jobs. (3) Effective December 6, 2019, Wangfeng Yan resigned as Chief Operating Officer and was appointed as Chief Executive Officer. (4) Effective December 6, 2019, Zhengyu Wang resigned as Chief Executive Officer. (5) Effective July 1, 2019, Weilin Zhang was appointed as Chief Financial Officer. (6) Effective July 1, 2019, Jing Jin resigned as Chief Financial Officer. (7) Effective December 6, 2019, Mingqin Dong was appointed as Chief Operating Officer. (8) Effective December 6, 2019, Zaihua Chen resigned as our Chief Technical Officer Director Compensation The following section presents information regarding the compensation paid during fiscal 2019 to members of our Board of Directors who are not also our employees (referred to herein as “Non-Employee Directors”). As of December 31, 2019, we had four such directors, Ms. Yefang Zhang, Mr. Wencai Pan, Mr. Shudong Wang and Mr. Hongdao Qian. We may also provide stock, option or other equity-based incentives to our directors for their service. We also plan to reimburse our directors for any out-of-pocket expenses incurred by them in connection with their services provided in such capacity. 96 The following table presents information regarding the compensation of our non-employee directors for fiscal 2019. Compensation for our Chairman and former Chief Executive Officer, Mr. Zhengyu Wang, is reflected above in the Summary Compensation Table rather than below. Fees earned or paid in cash ($) Stock Awards ($) Option Awards ($) Non-equity Incentive Plan Compensation ($) Changes in Pension Value and Nonqualified Deferred Compensation ($) All other Compensation ($) 0 10,800 7,835 7,835 $ $ $ $ 0 0 0 0 $ $ $ $ 0 0 0 0 $ $ $ $ 0 0 0 0 $ $ $ $ 0 0 0 0 $ $ $ $ 0 1,200 1,200 1,200 $ $ $ $ Total ($) 0 12,000 9,035 9,035 Name Yefang Zhang Wencai Pan Shudong Wang Hongda Qian $ $ $ $ C. Board Practices See information provided in response to Item 6.A. above as to the current directors. Election of Officers Our executive officers are elected by, and serve at the discretion of, our board of directors. Our chairman of the Board of Directors, Zhengyu Wang is married to one of our other directors, Yefang Zhang. Other than this relationship, there are no familial relationships among any members of the Board of Directors. Board of Directors and Board Committees Our board of directors currently consists of five (5) directors. A majority of our Board of Directors is independent, as such term is defined by The NASDAQ Capital Market. A director may vote in respect of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion. Mr. Wangfeng Yan currently holds the position of Chief Executive Officer. Mr. Zhengyu Wang currently holds the position of Chair of the Board. The board of directors believes that that separating the roles of Chief Executive Officer and Chairman of the board of directors is in the best interests of the Company and its shareholders. Separating such roles allows our Chief Executive Officer to focus completely on operations and corporate strategy execution. We do not have a lead independent director, and we do not anticipate having a lead independent director because we will encourage our independent directors to freely voice their opinions on a relatively small company board. The Board of Directors makes all relevant Company decisions. As a smaller company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters. 97 Board Committees We have established three standing committees under the board: the audit committee, the compensation committee and the nominating committee. The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board will retain the authority to interpret those plans). The nominating committee of the board of directors is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors. Wencai Pan qualifies as an audit committee financial expert and is the chair of the audit committee. Shudang Wang is the chair of the compensation committee. Hongdao Qian is the chair of the nominating committee. Wencai Pan, Shudong Wang and Hongdao Qian serve on all three committees, and each is an independent director. Duties of Directors Under British Virgin Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others: · · · · appointing officers and determining the term of office of the officers; authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable; exercising the borrowing powers of the company and mortgaging the property of the company; executing checks, promissory notes and other negotiable instruments on behalf of the company; and · maintaining or registering a register of mortgages, charges or other encumbrances of the company. Interested Transactions A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. We require directors to promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction. Remuneration and Borrowing The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party. 98 Qualification There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated. Director Compensation All directors hold office until the next annual meeting of shareholders at which directors are re-elected or until their successors have been duly elected and qualified. Our Chairman, Zhengyu Wang, is married to our Director, Yefang Zhang. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services. Non-employee directors are entitled to receive up to $30,000 per year for serving as directors and may receive incentive security grants from our company. In addition, non-employee directors are entitled to receive reimbursement of their actual travel expenses for each Board of Directors meeting attended. Limitation of Director and Officer Liability Under British Virgin Islands law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a view to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. British Virgin Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Under our memorandum and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the company and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not limit the liability of directors under United States federal securities laws. We may indemnify any of our directors or anyone serving at our request as a director of another entity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings. We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board of directors as to whether the director acted honestly and in good faith with a view to our best interests and as to whether the director had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient for the purposes of indemnification, unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of no plea does not, by itself, create a presumption that a director did not act honestly and in good faith and with a view to our best interests or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings. 99 We may purchase and maintain insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers against the liability as provided in our amended and restated memorandum and articles of association. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers or persons controlling our company under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Involvement in Certain Legal Proceedings To the best of our knowledge, none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC. D. Employees OUR EMPLOYEES As of May 31, 2020, we employ a total of 39 full-time employees in the following functions (except the employees at Shangchi Automobile): Lishui & Hangzhou Department Senior Management Human Resource & Administration Finance Research & Development Production & Procurement Sales & Marketing Total Number of Employees May 31, 2020 December 31, 2019 December 31, 2018 December 31, 2017 5 7 6 3 14 4 39 5 7 6 3 14 4 39 5 10 8 3 36 5 67 5 14 12 3 42 7 83 Below is information specifically for our Shangchi Automobile subsidiary. Shangchi Automobile Department Senior Management Human Resource & Administration Finance Research & Development Production & Procurement Sales & Marketing Total Number of Employees May 31, 2020 December 31, 2019 3 7 3 8 8 2 31 3 7 3 8 8 3 32 Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages. 100 We are required under PRC law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we are required by PRC law to cover employees in China with various types of social insurance. In 2019, 2018 and 2017, we contributed approximately $42,000, $47,000 and $123,000, respectively, to the employee benefit plans and social insurance. The effect on our liquidity by the payments for these contributions is immaterial. We believe that we are in material compliance with the relevant PRC employment laws. Employment Agreements Each employee is required to enter into an employment agreement. Accordingly, all of our employees, including management, have executed their employment agreements. Our employment agreements with our executives provide the amount of each executive officer’s salary and establish their eligibility to receive a bonus. 101 Our employment agreements with our executive officers generally provide for a salary to be paid monthly. The agreements also provide that executive officers are to work full time for our company and are entitled to all legal holidays as well as other paid leave in accordance with PRC laws and regulations and our internal work policies. The employment agreements also provide that we will pay for all mandatory social security programs for our executive officers in accordance with PRC regulations. Our executive officers are subject to keep trade secrets confidential. In addition, our employment agreements with our executive officers prevent them from rendering services for our competitors for so long as they are employed. Other than the salary, bonuses, equity grants and necessary social benefits required by the government, which are defined in the employment agreements, we currently do not provide other benefits to the officers. Our executive officers are not entitled to severance payments upon the termination of their employment agreement or following a change in control. We have not provided retirement benefits (other than a state pension scheme in which all of our employees in China participate) or severance or change of control benefits to our named executive officers. Under Chinese law, we may terminate an employment agreement without penalty by providing the employee thirty days’ prior written notice or one month’s wages in lieu of notice if the employee is incompetent or remains incompetent after training or adjustment of the employee’s position in other limited cases. If we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee. We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us. Wangfeng Yan We entered into an employment agreement with our Chief Executive Officer, Mr. Wangfeng Yan, effective December 6, 2019 . Under the terms of that employment agreement, Mr. Yan is entitled to the following: · Base compensation of RMB 200,000 payable in 12 equal monthly installments of RMB 15,000 each and RMB 20,000 year-end bonus. · Reimbursement of reasonable expenses incurred by Mr. Yan. Mr. Yan’s employment agreement is scheduled to expire on December 5, 2022. 102 Weilin Zhang We entered into an employment agreement with our chief financial officer, Mr. Weilin Zhang, effective July 1, 2019. Under the terms of that employment agreement, Mr. Zhang is entitled to the following: · Base compensation of RMB 300,000 payable in 12 equal monthly installments of RMB 25,000 each. · Reimbursement of reasonable expenses incurred by Mr. Zhang. Mr. Zhang’s employment agreement is scheduled to expire on June 30, 2022. Mingqin Dong We entered into an employment agreement with our Chief Operating Officer, Mr. Mingqin Dong, effective December 6, 2019. Under the terms of that employment agreement, Mr. Dong is entitled to the following: · Base compensation of RMB 180,000 payable in 12 equal monthly installments of RMB 15,000 each. · Reimbursement of reasonable expenses incurred by Mr. Dong. Mr. Dong’s employment agreement is scheduled to expire on December 5, 2022. 103 E. Share ownership The following table sets forth information with respect to beneficial ownership of our common shares as of June 30, 2020 by: · Each of our directors and named executive officers; and · All directors and named executive officers as a group. The number and percentage of common shares beneficially owned are based on 28,888,834 common shares outstanding as of June 30, 2020 Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of 5% or more of our common shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of common shares beneficially owned by a person listed below and the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of June 30, 2020 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all common shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at Tantech Holdings (Lishui) Co., Ltd., No. 10 Cen Shan Road, Shuige Industrial Zone, Lishui City, Zhejiang Province 323000, People’s Republic of China. As of June 30, 2020, we had thirteen shareholders of record. Named Executive Officers and Directors Directors and Named Executive Officers: Wangfeng Yan, CEO Weilin Zhang, CFO Mingqin Dong, COO Zhengyu Wang (2), Chairman Yefang Zhang (2), director Wencai Pan, independent director Shudong Wang, independent director Hongdao Qian, independent director All directors and executive officers as a group (eight (8) persons) Amount of Beneficial Ownership(1) Percentage Ownership(2) — — — 11,780,000 11,780,000 — — — — 0.0% 0.0% 0.0% 40.8% 40.8% 0.0% 0.0% 0.0% 0.0% (1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares. (2) The number of our common shares outstanding used in calculating the percentage for each listed person includes the common shares underlying options held by such person to the extent such options are exercisable within 60 days of the date hereof. The sole shareholder of Tanbsok Group Ltd is Ms. Yefang Zhang, who is the director of our company and the spouse of our Chairman and founder, Mr. Zhengyu Wang. By virtue of this relationship, Mr. Wang may be deemed to share beneficial ownership of the shares of our company held by Tanbsok Group Ltd with Ms. Zhang. Options Incentive Securities Pool We have established a pool for shares and share options for our employees. As of the date of this report, this pool contain shares and options to purchase 2,160,000 of our common shares, equal to 10% of the number of common shares outstanding as of the public offering. 104 Any options granted will vest at a rate of 20% per year for five years and have a per share exercise price equal to the fair market value of one of our common shares on the date of grant. We expect to grant shares and/or options under this pool to certain employees. We have not yet determined the recipients of any such grants. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The following table sets forth information with respect to beneficial ownership of our common shares as of June 30, 2020 by: · Each person who is known by us to beneficially own 5% or more of our outstanding common shares. The number and percentage of common shares beneficially owned are based on 28,888,834 common shares outstanding as of June 30, 2020. Information with respect to beneficial ownership has been furnished by each director, officer or beneficial owner of 5% or more of our common shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of common shares beneficially owned by a person listed below and the percentage ownership of such person, common shares underlying options, warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of June 30, 2020 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all common shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal shareholder is in the care of our Company at Tantech Holdings (Lishui) Co., Ltd., No. 10 Cen Shan Road, Shuige Industrial Zone, Lishui City, Zhejiang Province 323000, People’s Republic of China. Shareholders Tanbsok Group Ltd (2) Amount of Beneficial Ownership(1) Percentage Ownership(2) 11,780,000 40.8% (1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares. (2) Tanbsok Group Ltd holds one hundred percent of our issued and outstanding shares prior to our initial public offering. The sole shareholder of Tanbsok Group Ltd is Ms. Yefang Zhang, who is a director of our company and the spouse of our Chairman and founder, Mr. Zhengyu Wang. By virtue of this relationship, Mr. Wang may be deemed to share beneficial ownership of the shares of our company held by Tanbsok Group Ltd with Ms. Zhang. B. Related party transactions In addition to the executive officer and director compensation arrangements discussed in “Executive Compensation,” below we describe transactions since January 1, 2013, to which we have been a participant, in which the amount involved in the transactions is material to us or the related party. Since the beginning of 2013, we have had transactions with the following related parties: · Zhengyu Wang · Yefang Zhang · Wangfeng Yan · Henglong Chen · LiShui JiuAnJu Commercial Trade Co., Ltd. · Forasen Group Co., Ltd. 105 · Zhejiang Forasen Food Co., Ltd. · Hangzhou Sigma Trading Co., Ltd. · Hong Kong Clean Energy Ltd. Summary of Status of Related Party Transactions Given the number of related transactions, we believe it is helpful to provide an overview of the largest amount outstanding for each of the related party transactions described here during the periods covered that is material to us or the related party. For more details, please refer to note 14 of the financial statements for the years ended December 31, 2019 and 2018. As to all related party transactions that are loans, we disclose them below without regard to whether such loans is material. All such related party loans carried no interest and were repayable upon demand, with no periodic payments required. The other details regarding such loans are described for each such loan. These related parties fall within two categories: those who are shareholders, officers and directors of THL and/or Tantech Bamboo, and those who are related to Forasen Group Co., Ltd. All amounts described in this section are unsecured, interest-free and due on demand. Shareholders, Officers, Directors and Employees of THL and Tantech Bamboo Before the IPO, THL was owned entirely by Tanbsok Group Ltd., the sole shareholder of which is Ms. Yefang Zhang, the spouse of our Chairman of Board of Directors, Mr. Zhengyu Wang. THL owns 100% of USCNHK, and USCNHK owns 100% of Lishui Tantech which in turn owns 100% of Tantech Bamboo. In June 24, 2016, Lishui Tantech has entered into an equity purchase agreement with the previous holders of 5% interest of Tantech Bamboo, to purchase the 5% interest of Tantech Bamboo for 1,018,935 shares of THL. The purchase was completed in December 2016. Dr. Henglong Chen is the original shareholder of Shangchi Automobile (formerly known as Suzhou E-Motors). The Company acquired his 70% equity interest in Shangchi Automobile and issued 2,500,000 restricted shares of Tantech’s common stock to him in connection with the acquisition of Shangchi Automobile. As of December 31, 2019 and 2018, Dr. Henglong Chen and his affiliates advanced $932,616 and $1,227,773 to the Company for its working capital purpose, respectively. For the year ended December 31, 2017, the Company borrowed $1,537,000 from Mr. Yulong Chen, a shareholder of the Company for working capital purpose. The balance was fully repaid during the year ended December 31, 2018. 106 Lishui JiuAnJu Commercial Trade Co., Ltd. (“LJC”) Wangfeng Yan and Dexian Zhang (Yefang Zhang’s brother) each own 50% of the equity of LJC. Although LJC’s name shares “JiuAnJu” in common with a third-party debtor, ZheJiang JiuAnJu Environment Protection Co., Ltd., this entity is unrelated to LJC or its shareholders. Prior to September 11, 2011, LJC was an unrelated party owned by Yonghong Wu. At that time, LJC was a customer of our company and distributed our products for sale. Although the terms of such sales were generally interest-free 60 days net payment, LJC became delinquent in its payments to our company and accrued a significant account payable to our company. In order to protect our company from the risk of default by LJC, Zhengyu Wang personally loaned Mr. Zhang and Mr. Yan RMB 10 million to purchase all of the equity of LJC from Ms. Wu and assume the liabilities of LJC. In the event Mr. Zhang and Mr. Yan fail to repay Mr. Wang upon demand, Mr. Wang has the right to obtain ownership of LJC. Forasen Companies Mr. Zhengyu Wang and Ms. Yefang Zhang each own 50% of the equity of Forasen Group Co., Ltd. (“Forasen Group”). Moreover, 95% of Tantech Bamboo was previously owned by Forasen Group, rather than USCNHK. Forasen Group owns part of the equity of Zhejiang Forasen Food Co., Ltd. (“ZFF”) and Forasen Group previously owned all of the equity of Hangzhou Sigma Trading Co., Ltd. (“HST”). As of December 31, 2019 and 2018, the Company borrowed $693,504 and $874,402 from Forasen Group and its affiliates, controlled by Mr. Zhengyu Wang, Chairman and previous CEO of the Company, for working capital purpose. Other Related Parties Hong Kong Clean Energy Ltd. (“HKCE”) is a company registered in Hong Kong and is wholly owned by Mr. Zhengyu Wang. Before December 2014, our company owed HKCE $120,000, representing the payment made by HKCE on the company’s behalf. 107 Settlement of Related Party Balances On March 20, 2013, USCNHK paid RMB 115,520,000 (approximately $18.5 million) to Forasen Group for the acquisition of Tantech Bamboo. Among the amount being paid, RMB 37,635,136 (equivalent of approximately $6.1 million) was borrowed from Mr. Zhengyu Wang. On September 20, 2013, USCNHK, Mr. Wang and Forasen Group reached an agreement in which Mr. Wang forgave the borrowing from USCNHK and the Company agreed to offset such borrowing against the receivables from Forasen Group for RMB 37,635,136 (equivalent of approximately $6.1 million). The settlement decreased the Company’s “due from related parties” balances by approximately $6.1 million and decreased its additional paid-in capital account by the same amount. As of December 31, 2014, the Company settled all related party balances. Future Related Party Transactions Our Corporate Governance Committee of our Board of Directors (which consists solely of independent directors) will approve all future related party transactions. C. Interests of experts and counsel Not applicable for annual reports on Form 20-F. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information See information provided in response to Item 18 below. We incorporate by reference in the Registration Statement on Form F-3 (File No. 333- 213240) our consolidated balance sheets as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2019, which appears in this Annual Report on Form 20-F. Legal and Administrative Proceedings We may be involved from time to time in litigation, claims or other disputes in the ordinary course of business regarding, among other things, contract disputes with our customers, copyright, trademark and other intellectual property infringement claims, consumer protection claims, employment related cases and other matters in the ordinary course of our and disputes between our merchants and consumers. We may also be involved in litigation, regulatory investigations or inquiries and administrative proceedings that may not necessarily arise from our ordinary course of business, such as securities class action lawsuits and investigations or inquiries by securities regulators. Dividend Policy Since our inception, we have not declared or paid any dividends on our ordinary shares. We have no present plan to pay any dividends on our ordinary shares in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. Any future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. B. Significant Changes We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. ITEM 9. THE OFFER AND LISTING. A. Offer and listing details Our common shares have been listed on the NASDAQ Capital Market since March 24, 2015 under the symbol “TANH.” The table below shows, for the periods indicated, the high and low market prices for our shares. Annually: 2015 (from March 24, 2015) 2016 2017 2018 2019 2020 (through May 31, 2020) Quarterly: 2018 First Quarter Second Quarter Third Quarter Fourth Quarter Market Price Per Share Low High $ $ $ $ $ $ $ $ $ $ 33.97 $ 5.89 $ 4.37 $ 3.72 $ 2.55 $ 1.83 $ 2.80 $ 3.72 $ 2.87 $ 1.85 $ 3.12 1.88 1.15 1.25 1.40 0.81 2.45 2.72 1.25 1.55 2019 First Quarter Second Quarter Third Quarter Fourth Quarter 2020 First Quarter Second Quarter (through May 31, 2020) Monthly: 2019 December 2020 (through May 31, 2020) January February March April May $ $ $ $ $ $ $ $ $ $ $ $ 1.83 $ 1.62 $ 1.63 $ 2.55 $ 1.83 $ 1.24 $ 2.55 $ 1.83 $ 1.57 $ 1.26 $ 1.24 $ 1.08 $ 1.50 1.43 1.40 1.42 0.81 0.90 1.54 1.43 1.00 0.81 0.92 0.95 108 B. Plan of distribution Not applicable for annual reports on Form 20-F. C. Markets Our common shares are listed on the NASDAQ Capital Market under the symbol “TANH.” D. Selling shareholders Not applicable for annual reports on Form 20-F. E. Dilution Not applicable for annual reports on Form 20-F. F. Expenses of the issue Not applicable for annual reports on Form 20-F. ITEM 10. ADDITIONAL INFORMATION. A. Share capital Not applicable for annual reports on Form 20-F. B. Memorandum and articles of association We incorporate by reference the description of our Memorandum and Articles of Association, as currently in effect in the British Virgin Islands, set forth in our registration statement on Form F-1, declared effective on March 18, 2015 (File No. 333-198788). C. Material contracts Other than as otherwise disclosed previously, we did not have any other materials contracts. D. Exchange controls Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries. 109 In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches. We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of SAFE and other PRC government authorities as necessary. SAFE Circular 37 In July 2014, SAFE issued SAFE Circular 37, which supersedes SAFE Circular 75, and requires that PRC citizens or residents must register with the relevant local SAFE branch before making capital contribution to any offshore entity directly established or indirectly controlled by that PRC citizen or resident for the purpose of investment or financing and with onshore or offshore assets or equity interests legally owned by that PRC citizen or resident. In addition, the SAFE registrations are required to be updated with local SAFE branch with respect to that offshore special purpose company in connection with the change of its basic information, such as its company name, business term, shareholding by individual PRC citizens or residents, merger, or division and, with respect to the individual PRC citizens or residents in case of any increases or decreases of capital in that offshore special purpose company, or share transfers or swaps by the individual PRC citizens or residents. Regulation of Dividend Distribution The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. 110 E. Taxation The following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax consequences related to an investment in our common shares. It is directed to U.S. Holders (as defined below) of our common shares and is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax consequences relating to an investment in our common shares, such as the tax consequences under state, local and other tax laws. The following brief description applies only to U.S. Holders (defined below) that hold common shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and you are, for U.S. federal income tax purposes, · · · · an individual who is a citizen or resident of the United States; a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; an estate whose income is subject to U.S. federal income taxation regardless of its source; or a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. WE URGE POTENTIAL PURCHASERS OF OUR SHARES TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF OUR SHARES. People’s Republic of China Enterprise Taxation The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders. Our company pays a 17% value added tax and EIT rates of 15% for Tantech Bamboo and 25% for Tantech Charcoal. Tantech Bamboo pays a lower EIT rate than Tantech Charcoal because Tantech Bamboo has been certified as high technology companies and thus enjoys a preferable rate. If this favorable EIT rate were to be terminated or Tantech Bamboo was to fail to qualify to receive these rates, they would be subject to taxation at the standard EIT rate of 25% for enterprise income taxes, unless we were otherwise to qualify for a decreased tax rate. 111 British Virgin Islands Taxation Under the BVI Act as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to the common shares and all holders of common shares are not liable to the British Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands does not impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Act. There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVI Act. In addition, shares of companies incorporated or re-registered under the BVI Act are not subject to transfer taxes, stamp duties or similar charges. There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands or between China and the British Virgin Islands. United States Federal Income Taxation The following does not address the tax consequences to any particular investor or to persons in special tax situations such as: · · · · · · · · · · · · · · banks; financial institutions; insurance companies; regulated investment companies; real estate investment trusts; broker-dealers; traders that elect to mark-to-market; U.S. expatriates; tax-exempt entities; persons liable for alternative minimum tax; persons holding our common shares as part of a straddle, hedging, conversion or integrated transaction; persons that actually or constructively own 10% or more of our voting shares; persons who acquired our common shares pursuant to the exercise of any employee share option or otherwise as consideration; or persons holding our common shares through partnerships or other pass-through entities. Prospective purchasers are urged to consult their tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares. 112 Taxation of Dividends and Other Distributions on our Common Shares Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the common shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends are taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the common shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, common shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on the NASDAQ Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our common shares, including the effects of any change in law after the date of this annual report. Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our common shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your common shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. Taxation of Dispositions of Common Shares Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the common shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the common shares for more than one year, you will generally be eligible for reduced tax rates. If capital gains preferential rates are amended, such gains would be taxable at the personal income rates then in place. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes. 113 Passive Foreign Investment Company We believe that we are not a passive foreign investment company for U.S. federal income tax purposes for the year ended December 31, 2017, but we cannot be certain whether we will be treated as a passive foreign investment company for any future taxable year. PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either: · · at least 75% of its gross income is passive income; or at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our common shares, our PFIC status will depend in large part on the market price of our common shares. Accordingly, fluctuations in the market price of the common shares may cause us to become a PFIC. If we are a PFIC for any year during which you hold common shares, we will continue to be treated as a PFIC for all succeeding years during which you hold common shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the common shares. If we are a PFIC for any taxable year during which you hold common shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the common shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common shares will be treated as an excess distribution. Under these special tax rules: · · · the excess distribution or gain will be allocated ratably over your holding period for the common shares; the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital, even if you hold the common shares as capital assets. A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for the common shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the common shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the common shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actual sale or disposition of the common shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares. Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “— Taxation of Dividends and Other Distributions on our Common shares” generally would not apply. 114 The mark-to-market election is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the NASDAQ Capital Market. If the common shares are regularly traded on the NASDAQ Capital Market and if you are a holder of common shares, the mark-to-market election would be available to you were we to be or become a PFIC. Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold common shares in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the common shares and any gain realized on the disposition of the common shares. You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the elections discussed above. Information Reporting and Backup Withholding Dividend payments with respect to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. H. Documents on display We are subject to the information requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC. You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC. 115 I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest Rate Risk Our exposure to interest rate risk primarily relates to excess cash invested in short-term instruments with original maturities of less than a year and long-term held-to-maturity securities with maturities of greater than a year. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we have to sell securities that have declined in market value due to changes in interest rates. We have not been, and do not expect to be, exposed to material interest rate risks, and therefore have not used any derivative financial instruments to manage our interest risk exposure. As of December 31, 2019, if interest rates increased/decreased by 1%, with all other variables having remained constant, and assuming the amount of bank borrowings outstanding at the end of the year was outstanding for the entire year, profit attributable to equity owners of our company would have been RMB 0.5 million ($0.1 million) lower/higher, respectively, mainly as a result of higher/lower interest income from our cash and cash equivalents and loan receivables. We had no short-term investments and long-term held-to-maturity investments as of December 31, 2019. Foreign Exchange Risk Our functional currency is the RMB, and our financial statements are presented in U.S. dollar. The RMB depreciated from 2014 through the end of 2016, but has appreciated approximately 20% against the U.S. dollar since the beginning of 2017. Any appreciation or depreciation in the value of RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operation. Currently, our assets, liabilities, revenues and costs are mainly denominated in RMB. However, we may generate revenues denominated in U.S. dollar, and our offering was in U.S. dollar. Therefore, a portion of our cash and cash equivalents and short-term financial assets are denominated in U.S. dollar. Our exposure to foreign exchange risk primarily relate to those financial assets denominated in U.S. dollars. Any significant revaluation of RMB against U.S. dollar may materially affect our earnings and financial position, and the value of, and any dividends payable on, our common shares in U.S. dollars in the future. We reflect the impact of currency translation adjustments in our financial statements under the heading “accumulated other comprehensive income (loss).” For years ended December 31, 2019, 2018 and 2017, we had adjustments of $(5,494,731), $(949,689) and $4,341,324, respectively, for foreign currency translations. See “Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could adversely affect our business and the value of our securities.” Commodity Risk As a developer and manufacturer of bamboo-based charcoal products, our Company is exposed to the risk of an increase in the price of raw bamboo and, as a result, bamboo charcoal. We historically have lacked an ability to pass on price increases to customers, but we have not entered into any contract to hedge any specific commodity risk. Moreover, our Company does not purchase or trade on commodity instruments or positions; instead, it purchases commodities (bamboo charcoal and wood-based charcoal) for use. In summer 2012, we faced a supply shortage based on local government initiatives to reduce the risk of fire caused by charcoal. As a result, the local government in Daxing Anlin, where one of our main wood-based OEM BBQ charcoal suppliers is located, restricted the production of charcoal during June, July and August 2012. At that time, our stock of OEM BBQ charcoal was insufficient to avoid demand pressures. We have viewed this temporary shortage as an isolated event and do not expect it to recur in the future. If, however, this belief is incorrect, the absence of hedging could exacerbate our commodity risk. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. With the exception of Items 12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not applicable, as the Company does not have any American Depositary Shares. 116 PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. We do not have any material defaults in the payment of principal, interest, or any installments under a sinking or purchase fund. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. See “Item 10.B—Additional Information—Memorandum and Articles of Association—Common Shares” for a description of the rights of securities holders, which remain unchanged. ITEM 15. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective as of December 31, 2019. (b) Management’s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting (“ICFR”) is a process that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that: ● Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 117 Under the supervision and with the participation of our management, we conducted an assessment of the effectiveness of our system of ICFR as of December 31, 2019, the last day of our fiscal year of 2019. This assessment was based on the framework established in the Internal Control Integrated Framework issued by the committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on such evaluation, our management, including the CEO and CFO, has concluded that the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934) were not effective as of December 31, 2019. Management’s assessment of the ineffective internal control over financial reporting as of December 31, 2019 considered the following factors: the number of inadequate skilled accounting personnel who are either qualified as Certified Public Accountants in the U.S. or who have received education from U.S. institutions or other educational programs that would provide enough relevant education relating to U.S. GAAP; · lack of adequate knowledge of SEC rules; and the impact of adjustments proposed by our independent auditors during our review and annual audit processes that, if not posted, may have on the overall financial statements. · · Based on the above factors, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2019 because our accounting staff continues to lack sufficient U.S. GAAP experience and requires further substantial training. These material weaknesses existed as of December 31, 2018 and had not yet been fully remediated as of December 31, 2019. We reviewed the result of management’s assessment with the Audit Committee of our Board of Directors. 118 (c) Attestation report of the registered public accounting firm. Not applicable. (d) Changes in internal control over financial reporting. There have been no changes in the Company’s ICFR identified in connection with the above evaluation that occurred during the last fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s ICFR, other than the following: · We continued to enforce the plan for remediation of the material weaknesses in ICFR as outlined in the Form 20-F for the year ended December 31, 2016, continued to improve internal control over financial reporting and conducted timely self-assessment. · We completed a thorough review of the processes and procedures in the Company’s financial reporting related to the areas where the material weaknesses existed and made necessary changes to streamline our processes. Despite the material weaknesses and deficiencies reported above, our management believes that our consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented and that this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 119 ITEM 15T. CONTROLS AND PROCEDURES. Not applicable. ITEM 16. [RESERVED] ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT The Company’s Board of Directors has determined that Mr. Wencai Pan qualifies as an “audit committee financial expert” in accordance with applicable NASDAQ Capital Market standards. The Company’s Board of Directors has also determined that Mr. Pan and the other members of the Audit Committee are all “independent” in accordance with the applicable NASDAQ Capital Market standards. ITEM 16B. CODE OF ETHICS. We have adopted a Code of Ethics and have attached it as an exhibit to this annual report. A copy of the Code of Ethics may be found on our company website. ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . Prager Metis CPAs, LLC was appointed by the Company to serve as its independent registered public accounting firm for fiscal 2019 and 2018. Audit services provided by Prager Metis for fiscal 2019 and 2018 included the examination of the consolidated financial statements of the Company; and services related to periodic filings made with the SEC. Friedman LLP was appointed by the Company to serve as its independent registered public accounting firm for fiscal 2017. Audit services provided by Friedman LLP for fiscal 2017 included the examination of the consolidated financial statements of the Company; and services related to periodic filings made with the SEC. Fees Paid To Independent Registered Public Accounting Firm Audit Fees During fiscal 2019 and 2018, Prager Metis’s fees for the annual audit of our financial statements and the periodic reviews of the financial statements were $225,000 and $215,000, respectively. During fiscal 2017, Friedman LLP’s fees for the annual audit of our financial statements and the periodic reviews of the financial statements were $250,000. Audit-Related Fees The Company has not paid Prager Metis for audit-related services in fiscal 2019 and 2018. The Company has not paid Friedman LLP for audit-related services in fiscal 2017. Tax Fees The Company has not paid Prager Metis for tax services in fiscal 2019 and 2018. The Company has not paid Friedman LLP for tax services in fiscal 2017. 120 All Other Fees The Company has not paid Prager Metis other fees in fiscal 2019 and 2018. The Company has not paid Friedman LLP’s other fees in fiscal 2017. Audit Committee Pre-Approval Policies Before Prager Metis was engaged by the Company to render audit or non-audit services, the engagement was approved by the Company’s audit committee. All services rendered by Prager Metis have been so approved. Percentage of Hours The percentage of hours expended on the principal accountants’ engagement to audit our consolidated financial statements for 2019 that were attributed to work performed by persons other than Prager Metis’s full-time permanent employees was less than 50%. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. Not applicable. ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. Neither the Company nor any affiliated purchaser has purchased any shares or other units of any class of the Company’s equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act during the fiscal year ended December 31, 2019. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. Not applicable. ITEM 16G. CORPORATE GOVERNANCE. Other than as described in this section, our corporate governance practices do not differ from those followed by domestic companies listed on the NASDAQ Capital Market. NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the NASDAQ Capital Market prior to issuance (or potential issuance) of securities equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value. Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuers like the Company to follow their home country practice rather than this shareholder approval requirement. The Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable. 121 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. ITEM 19. EXHIBITS. 1.1 (1) 1.2.1 (1) 1.2.2 (1) 2.1 (1) 4.1 (2) 4.2 (3) 4.3 (4) 4.4 (5) 4.5 (4) 4.6 (6) 4.7 (6) 4.8 (7) 4.9 (7) 4.10 (7) 4.11 (7) 4.12 (7) 4.13 (7) 4.14 (7) 4.15 (7) 4.16 (4) 4.17 (7) 4.18 4.19 Articles of Association of Tantech Holdings Ltd Memorandum of Association of Tantech Holdings Ltd First Amended and Restated Memorandum of Association of Tantech Holdings Ltd Specimen Common Share Certificate Purchase Agreement by and among Registrant, Henglong Chen and Suzhou Yimao E-Motors Co., Limited dated May 2, 2016 Long Term Supply Agreement between Registrant and Zhejiang Longquanzhixin Trading Co., Limited dated December 15, 2016 Summary Translation of Share Purchase Agreement between Zhejiang Apeikesi Energy Co., Ltd and Tantech Energy Technology Co., Ltd dated December 14, 2017 Translation of Share Transfer Agreement between Zhejiang Tantech Bamboo Technology Co., Ltd. and Lishui Ertai Trading Co. Ltd dated June 26, 2019 Summary Translation of Lishui Xincai Share Purchase Agreement between Shanghai Shicai Minerals Co., Ltd and Tantech Holdings Ltd dated January 8, 2018 Translation of Investment Agreement between Tantech Holdings (Lishui) Co., Ltd. and Jingning Zhonggang Mining Co., LTD dated November 29, 2019 Translation of Supplementary Agreement among Tantech Holdings (Lishui) Co., Ltd., Jingning Zhonggang Mining Co., Ltd and Lishui Zhonggang Mining Co., Ltd. dated December 17, 2019 Translation of Exclusive Management Consulting and Technology Service Agreement between Shanghai Jiamu Investment Management Co., Ltd and Hangzhou Wangbo Investment Management Co., Ltd. dated December 10, 2019 Translation of Equity Pledge Agreement among Shanghai Jiamu Investment Management Co., Ltd, Xinyang Wang and Hangzhou Wangbo Investment Management Co., Ltd. dated December 10, 2019 Translation of Exclusive Call Option Agreement among Shanghai Jiamu Investment Management Co., Ltd, Xinyang Wang and Hangzhou Wangbo Investment Management Co., Ltd. dated December 10, 2019 Translation of Proxy Agreement among Shanghai Jiamu Investment Management Co., Ltd, Xinyang Wang and Hangzhou Wangbo Investment Management Co., Ltd. dated December 10, 2019 Translation of Power of Attorney between Xinyang Wang and Zhengyu Wang dated December 10, 2019 Translation of Equity Pledge Agreement among Shanghai Jiamu Investment Management Co., Ltd, Wangfeng Yan and Hangzhou Wangbo Investment Management Co., Ltd. dated May 15, 2020 with the effective date of December 10, 2019 Translation of Exclusive Call Option Agreement among Shanghai Jiamu Investment Management Co., Ltd, Wangfeng Yan and Hangzhou Wangbo Investment Management Co., Ltd. dated May 15, 2020 with the effective date of December 10, 2019 Translation of Proxy Agreement among Shanghai Jiamu Investment Management Co., Ltd, Wangfeng Yan and Hangzhou Wangbo Investment Management Co., Ltd. dated May 15, 2020 with the effective date of December 10, 2019 Translation of Power of Attorney between Wangfeng Yan and Zhengyu Wang dated July 13, 2017 Translation of Joint Statement among Zhengyu Wang, Wangfeng Yan, Xinyang Wang, Wangbo and Jiamu dated May 15, 2020 with the effective date of December 10, 2019 Translation of Employment Agreement between the Registrant and Wangfeng Yan as the CEO dated December 6, 2019 Translation of Employment Agreement between the Registrant and Weilin Zhang as the CFO dated June 26, 2019 4.20 4.21 4.22 4.23 Translation of Employment Agreement between the Registrant and Mingqin Dong as the COO dated December 6, 2019 Summary Translation of Lease between Zhejiang Tantech Bamboo Technology Co., Ltd. and Tantech Energy Technology Co., Ltd dated June 30, 2019 Translation of Lease between Zhangjiagang Jinmao Investment Development Co. LTD and Shangchi Automobile Co., Ltd. Summary Translation of Lease between Shenzhen Shilian Junhui Real Estate Operation and Management Inc. and Shenzhen Yimao New Energy Sales Co., Ltd. 8.1 List of subsidiaries. 11.1 (2) Code of Ethics 12.1 12.2 13.1 Certification of the principal executive officer of the Registrant pursuant to Rule 13a-14(a) or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the principal financial officer of the Registrant pursuant to Rule 13a-14(a) or 15(d)-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the principal executive officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 122 13.2 Certification of the principal financial officer of the Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1 (1) Incentive Securities Plan 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. 123 (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 December 19, 2016 and incorporated by reference. (4) Previously filed with our annual report on Form 20-F, File no. 001-36885, filed on May 11, 2018 and incorporated herein by reference. (5) Previously filed on Form 6-K, dated June 27, 2019 and incorporated by reference. (6) Previously filed on Form 6-K, dated December 18, 2019 and incorporated by reference. (7) Previously filed on Form 6-K, dated May 20, 2020 and incorporated by reference. 124 SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F 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: June 30, 2020 125 TANTECH HOLDINGS LTD AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS TANTECH HOLDINGS LTD AND SUBSIDIARIES TABLE OF CONTENTS Reports of independent Registered Public Accounting Firms Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2019 and 2018 Consolidated Statements of Comprehensive Income (Loss) For the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Stockholders’ Equity For the Years Ended December 31, 2019, 2018 and 2017 Consolidated Statements of Cash Flows For the Years Ended December 31, 2019, 2018 and 2017 Notes to Consolidated Financial Statements Page F-2 F-3 F-4 F-5 F-6 F-7 - F-38 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of Tantech Holdings, Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tantech Holdings, Ltd. and subsidiaries (“the Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2019, and related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. As part of our audit of the financial statements as of December 31, 2019 and 2018 and for each of the years in the two-year period ended December 31, 2019, we also audited the adjustments to the consolidated statements of comprehensive income (loss) and cash flows for the year ended December 2017 to retroactively apply the effects of the discontinued operations that occurred in 2018 as described in Note 5. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s consolidated financial statements as of and for the year ended December 31, 2017 other than with respect to the adjustments. The 2017 financial statements were audited by other auditors. Accordingly, we do not express an opinion or any other form of assurance on the consolidated financial statements for the year ended December 31, 2017 as whole. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audit 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 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 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. /s/ Prager Metis CPAs, LLC We have served as the Company’s auditor since 2018 Hackensack, New Jersey June 30, 2020 F-2 Tantech Holdings Ltd and Subsidiaries Consolidated Balance Sheets December 31, 2019 December 31, 2018 Assets Current Assets Cash and cash equivalents (Note 3 at VIE) Restricted cash (Note 3 at VIE) Accounts receivable, net (Note 3 at VIE) Inventories, net (Note 3 at VIE) Advances to suppliers, net (Note 3 at VIE) Prepaid taxes (Note 3 at VIE) Prepaid expenses and other receivables, net (Note 3 at VIE) Current assets from discontinued operations Total Current Assets (Note 3 at VIE) Property, plant and equipment, net (Note 3 at VIE) Other Assets Manufacturing rebate receivable (Note 3 at VIE) Intangible assets, net (Note 3 at VIE) Long-term Investment Goodwill (Note 3 at VIE) Non-current assets from discontinued operations Total Other Assets (Note 3 at VIE) Total Assets (Note 3 at VIE) Liabilities and Stockholders' Equity Current Liabilities Short-term bank loans Bank acceptance notes payable (Note 3 at VIE) Accounts payable (Note 3 at VIE) Due to related parties (Note 3 at VIE) Customer deposits (Note 3 at VIE) Taxes payable (Note 3 at VIE) Due to third parties Accrued liabilities and other payables (Note 3 at VIE) Current liabilities from discontinued operations Total Current Liabilities (Note 3 at VIE) Deferred tax liability (Note 3 at VIE) Total Liabilities (Note 3 at VIE) Stockholders' Equity Common stock, $0.001 par value, 50,000,000 shares authorized, 28,853,242 shares issued and outstanding Additional paid-in capital Statutory reserves Retained earnings Accumulated other comprehensive loss Total Stockholders' Equity attributable to the Company Noncontrolling interest Total Stockholders' Equity Total Liabilities and Stockholders' Equity $ $ $ $ 12,440,457 $ 205,520 39,352,408 595,627 13,079,889 2,396,349 91,377 - 68,161,627 7,748,416 2,121,377 32,495,361 1,957,058 14,387,228 2,136,988 954,362 8,513,154 70,313,944 2,700,034 3,240,620 7,746,116 12,959,017 23,883,983 - - 44,589,116 115,450,777 $ 9,795,512 15,268,062 18,156,000 8,861,361 8,558,515 60,639,450 134,194,014 6,861,208 $ 205,520 1,650,851 1,626,120 6,955,142 102,704 287,200 1,444,896 - 19,133,641 1,784,875 20,918,516 7,683,014 2,121,377 2,524,462 2,102,175 865,615 344,563 3,253,253 1,598,104 1,662,252 22,154,815 2,053,512 24,208,327 28,853 39,310,178 6,379,276 52,058,681 (7,590,943) 90,186,045 4,346,216 94,532,261 115,450,777 $ 28,853 39,310,178 6,461,788 58,333,136 (2,066,364) 102,067,591 7,918,096 109,985,687 134,194,014 The accompanying notes are an integral part of these consolidated financial statements. F-3 Tantech Holdings Ltd and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) Revenues Cost of revenues Gross Profit Operating expenses Selling expenses General and administrative expenses Impairment of goodwill and intangible asset Research and development expenses Total operating expenses For the Years Ended December 31, 2019 2018 2017 $ 49,230,570 $ 43,253,070 5,977,500 29,561,399 $ 21,532,319 8,029,080 42,297,612 31,741,753 10,555,859 319,946 4,655,382 9,584,000 327,260 14,886,588 320,479 4,971,804 - 386,628 5,678,911 730,834 4,625,563 - 627,577 5,983,974 Income (loss) from operations (8,909,088) 2,350,169 4,571,885 Other income (expenses) Interest income Interest expense Other income, net Total other expenses Income (loss) before provision for income taxes Provision for income taxes Net income (loss) from continuing operations Discontinued operation: Income from discontinued operations, net of tax Loss from disposal of discontinued operations Net income (loss) from discontinued operations 53,060 (443,262) 3,669 (386,533) (9,295,621) 363,662 (9,659,283) 56,894 (626,343) 247,069 (322,380) 2,027,789 1,031,158 996,631 270,479 (569,891) (299,412) 83,367 - 83,367 18,648 (551,044) 436,095 (96,301) 4,475,584 1,528,003 2,947,581 65,550 - 65,550 Net income (loss) Less: net loss attributable to noncontrolling interest from continuing operations Net income (loss) attributable to common stockholders of Tantech Holdings Ltd. (9,958,695) (3,601,728) 1,079,998 (896,769) 3,013,131 (754,084) $ (6,356,967) $ 1,976,767 $ 3,767,215 Net income (loss) Other comprehensive income (loss): Foreign currency translation adjustment Comprehensive income (loss) Less: Comprehensive loss attributable to noncontrolling interest Comprehensive income (loss) attributable to common stockholders of Tantech Holdings Ltd. Earnings (loss) per share - Basic and Diluted Continuing operations Discontinued operations Total Weighted Average Shares Outstanding - Basic and diluted Continuing operations and discontinued operations (9,958,695) 1,079,998 3,013,131 (5,494,731) (15,453,426) (3,571,880) (949,689) 130,309 (881,364) (11,881,546) $ 1,011,673 $ 4,341,324 7,354,455 (784,186) 8,138,641 (0.21) $ (0.01) $ (0.22) $ 0.07 $ 0.00 $ 0.07 $ 0.15 0.00 0.15 28,853,242 28,745,571 25,971,912 $ $ $ $ The accompanying notes are an integral part of these consolidated financial statements. F-4 Tantech Holdings Ltd and Subsidiaries Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 2019, 2018 and 2017 Balance at December 31, 2016 Issuance of common stock for acquisition Issuance of common stock for private placement Foreign currency translation adjustment Net income (loss) Noncontrolling interest through acquisition Balance at December 31, 2017 Issuance of common stock for service Foreign currency translation adjustment Net income (loss) Balance at December 31, 2018 Foreign currency translation adjustment Net loss Balance at December 31, 2019 Common Stock Shares Amount Additional Paid in Capital Accumulated Other Comprehensive Income (loss) Statutory Reserves Retained Earnings Non Controlling Interest Total Stockholders' Equity 24,311,935 $ 24,312 $ 26,603,511 $ (5,472,696) $ 6,461,788 $ 52,589,154 $ - $ 80,206,069 2,500,000 1,891,307 - - - 2,500 1,891 - - - 6,497,500 5,966,317 - - - - - 4,371,426 - - - - - - - - - - - - 3,767,215 (30,102) (754,084) 6,500,000 5,968,208 4,341,324 3,013,131 - 9,583,646 9,583,646 28,703,242 28,703 39,067,328 (1,101,270) 6,461,788 56,356,369 8,799,460 109,612,378 150,000 - - 150 - - 242,850 - - - (965,094) - - - - - - 243,000 - 1,976,767 15,405 (896,769) (949,689) 1,079,998 28,853,242 28,853 39,310,178 (2,066,364) 6,461,788 58,333,136 7,918,096 109,985,687 - - - - - - (5,524,579) - - (82,512) - (6,274,455) 29,848 (3,601,728) (5,494,731) (9,958,695) 28,853,242 $ 28,853 $ 39,310,178 $ (7,590,943) $ 6,379,276 $ 52,058,681 $ 4,346,216 $ 94,532,261 The accompanying notes are an integral part of these consolidated financial statements. F-5 Tantech Holdings Ltd and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended December 31, 2018 2019 2017 Cash flows from operating activities Net income (loss) Net (income) loss from discontinued operations Net income (loss) from continuing operations Adjustments to reconcile net income (loss) to net cash provided by operating activities: $ (9,958,695) $ 299,412 (9,659,283) 1,079,998 $ (83,367) 996,631 Allowance for doubtful accounts - accounts receivable Allowance for doubtful accounts - advance to suppliers Allowance for doubtful accounts – other receivables Allowance for doubtful accounts - due from related party Inventory reserve Impairment of goodwill and intangible asset Decrease in deferred tax liability Depreciation expense Amortization of intangible asset Amortization of prepaid consulting expense Gain from disposal of property, plant and equipment Changes in operating assets and liabilities: Accounts receivable - non-related party Accounts receivable - related party Advances to suppliers Advances to suppliers, non-current Inventory Prepaid expenses and other receivables Manufacturing rebate receivable Accounts payable Accrued liabilities and other payables Customer deposits Collection of receivable from discontinued operations Taxes payable Net cash provided by continuing operations Net cash provided by (used in) discontinued operations Net cash provided by operating activities Cash flows from investing activities Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Additions to intangible assets Payment for business acquisition Payment for investment Cash acquired from business acquisition Changes in deposit for asset acquisition Proceeds from disposition of subsidiaries Net cash used in continuing operations Net cash provided by (used in) discontinued operations Net cash used in investing activities Cash flows from financing activities Proceeds from (repayment of) loans from third parties Notes receivable Bank acceptance notes payable, net of repayment Proceeds from bank loans Repayment of bank loans Repayment of loans from related parties Proceeds from issuance of common stocks Net cash provided by (used in) continuing operations Net cash provided by discontinued operations Net cash provided by (used in) financing activities 1,297,752 164,220 705,400 - 1,030,236 9,584,000 (165,500) 462,639 441,489 140,738 (8,047) (9,879,682) - 415,727 - 242,142 9,127 1,563,840 (751,363) (78,923) 6,184,836 8,962,187 (597,392) 10,064,143 4,632,769 14,696,912 (92,369) 16,580 - - (6,707,570) - - 854,567 (5,928,792) (1,522) (5,930,314) (2,823,890) - (1,823,003) 6,918,544 (7,352,944) (378,833) - (5,460,126) - (5,460,126) 910,811 777,848 66,305 364,288 700,379 - - 628,144 443,318 102,263 (44,814) 7,023,546 3,249,359 (3,555,851) 1,558,916 (147,485) 767,849 (644,959) (2,621,226) 49,492 (115,771) - 573,660 11,082,703 3,582,177 14,664,880 (559,038) 54,089 (2,585) - (17,448,000) - - - (17,955,534) (39,976) (17,995,510) 2,455,806 14,540 (4,560,185) 10,291,412 (7,835,606) (1,175,971) - (810,004) - (810,004) 3,013,131 (65,550) 2,947,581 2,632,813 (45,507) (16,827) - 13,908 - - 576,953 201,647 - (1,875,493) (1,001,613) - 2,826,316 6,839,953 804,763 (829,716) (2,942,190) (532,039) (1,489,128) (247,059) - (1,927,737) 5,936,625 (3,785,614) 2,151,011 (1,302,721) 662,144 - (4,552,240) - 35,707 443,400 - (4,713,710) 1,220,458 (3,493,252) (187,706) (14,780) 4,911,990 10,093,262 (11,957,020) (477,565) 5,968,208 8,336,389 - 8,336,389 Effect of exchange rate changes on cash, restricted cash and cash equivalents (530,288) 390,992 424,298 Net increase (decrease) in cash, restricted cash and cash equivalents 2,776,184 (3,749,642) 7,418,446 Cash, restricted cash and cash equivalents, beginning of year 9,869,793 13,619,435 6,200,989 Cash, restricted cash and cash equivalents, end of year $ 12,645,977 $ 9,869,793 $ 13,619,435 Supplemental disclosure information: Income taxes paid Interest paid Supplemental non-cash activities: Common shares issued for service Common shares issued for acquisition of Shangchi Automobile Net book value of assets and liabilities of Shangchi Automobile acquired $ $ $ $ $ 1,105,876 $ 439,869 $ 1,044,480 $ 608,048 $ 1,156,976 479,358 - $ - $ - $ 243,000 $ - $ - $ - 6,500,000 11,122,410 The accompanying notes are an integral part of these consolidated financial statements. F-6 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 19, 2010. Through its 100% owned operating subsidiaries and entities controlled through VIE agreements, Tantech engages in the research and development, production and distribution of various products made from bamboo, manufacture and sell electric vehicles, as well as mining exploration. Below is a chart representing the corporate structure as of December 31, 2019: On August 19, 2015, the Board of Directors of Tantech authorized USCNHK Group Limited (“USCNHK”), a 100% owned subsidiary in Hong Kong, to form a wholly-owned subsidiary, Lishui Tantech Energy Tech Co., Ltd. (“LishuiTantech”), as a holding company to hold its 95% equity interest in Tantech Bamboo. On April 7, 2016, LishuiTantech was registered in Lishui, China under the PRC law. On June 24, 2016, Tantech BVI, through LishuiTantech, entered into an equity purchase agreement with the five individual holders of the remaining 5% interest of Tantech Bamboo, to acquire the 5% interest of Tantech Bamboo for 1,018,935 shares of the Company’s common stock. The transfer of the 5% equity interest was completed on December 28, 2016. In July 2017, LishuiTantech changed its name to Tantech Holdings (Lishui) Co., Ltd. (“Lishui Tantech”). Zhejiang Tantech Bamboo Technology Co., Ltd. (“Tantech Bamboo” or “Bamboo”) was established on October 23, 2002 and is engaged in manufacturing and sale of various products made from bamboo. Zhejiang Tantech Bamboo Charcoal Co., Ltd. (“Tantech Charcoal” or “Charcoal”) was established on September 5, 2002, and is engaged in the trading business, including the export of charcoal products. Hangzhou Tanbo Tech Co., Ltd. (“Tanbo Tech” or “Tanbo”), established by Tantech Bamboo on December 8, 2015, is exploring business opportunities outside Lishui area. Zhejiang Babiku Charcoal Co., Ltd. (“Tantech Babiku” or “Babiku”), established by Tantech Bamboo on October 20, 2015, and is engaged in the production and sales of low emission BBQ charcoal. Lishui Zhongzhu Charcoal Co., Ltd. (“Lishui Zhongzhu” or “Zhongzhu”), established by Tantech Bamboo on November 18, 2015. It changed its name to Zhejiang Zhongzhu Tourism Development Co., Ltd. on May 17, 2017. F-7 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – Organization and nature of business (continued) Zhejiang Tantech Energy Tech Co., Ltd. (“Tantech Energy” or “Energy”), was established on September 24, 2008. Tantech Energy engaged in the manufacturing of Electric Double-Layer Capacitor (“EDLC”) carbon. Energy was sold in July 2019. (See Note 5) Hangzhou Tanbo Tech Co., Ltd. (“Tanbo Tech” or “Tanbo”), established by Tantech Bamboo on December 8, 2015, is exploring business opportunities outside Lishui area. Due to business strategy change, the Company closed Lishui Zhongzhu and Tantech Babiku during the year ended December 31, 2018. As a result, together with Tantech Energy, the assets and liabilities for these discontinued entities were reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all these discontinued operations, less applicable income taxes (benefit), were reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45. (See Note 5) Lishui Xincai Industrial Co., Ltd. (“Lishui Xincai”) was established on December 14, 2017 by an unrelated third party. On January 8, 2018, the third party transferred all of its shares in Lishui Xincai to Lishui Tantech. Since then, Lishui Xincai has been Lishui Tantech’s wholly owned subsidiary. On December 30, 2019, Tantech Bamboo transferred all of its shares in its wholly-owned subsidiary Tantech Charcoal to Lishui Xincai. On July 12, 2017, the Company acquired 70% of the equity interest of Shangchi Automobile Co., Ltd. (“Shangchi Automobile”), formerly known as Suzhou E-Motors Co., Ltd, (“Suzhou E-Motors”) from its original shareholder. Shangchi Automobile is a specialty electric vehicles and power batteries manufacturer based in Zhang Jia Gang City, Jiangsu Province, China. The 70% equity interest include 19% equity interest owned directly through Hangzhou Jiyi Investment Management Co., Ltd (“Jiyi”) and 51% equity interest owned through Hangzhou Wangbo Investment Management Co., Ltd (“Wangbo”). Jiyi is 100% owned through Shanghai Jiamu Investment Management Co., Ltd (“Jiamu”), who is, in turn, wholly owned by Euroasia International Capital (“Euroasia”), a 100% owned subsidiary of the Company. Wangbo is an entity which is controlled through a series of contractual agreements (Note 3). On November 13, 2018, the Company established Shenzhen E-Motors New Energy Sales Co., Ltd. (“Shenzhen E-Motors”), a sales subsidiary through Shangchi Automobile. As a result, the Company ultimately controls 70% equity interest of Shangchi Automobile and its subsidiary Shenzhen E-Motors and accounts of Shangchi Automobile and Shenzhen E-Motors are consolidated into those of the Company. Euroasia is incorporated in Hong Kong, PRC. Jiamu is incorporated in Shanghai, PRC. Both Jiyi and Wangbo are incorporated in Hangzhou, PRC. Euroasia also has a fully owned subsidiary Euroasia New Energy Automotive (Jiangsu) Co., Ltd (“Euroasia New Energy”). They are all investment holding companies with no significant business activities. (Collective “E-Motor Holdings”). F-8 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, and entities controlled through a series of agreements known as variable interest agreements (“VIE”) (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 E-Motors owned by Zhangjiagang Jinke Chuangtou Co., Ltd., which is not under the Company's control. Business Combinations Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired business are included in the income statement from the date of acquisition. Discontinued operation In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205- 20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations (which we presented as operations to be disposed and operations disposed), less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45. 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 purchase price allocation, the useful lives of property and equipment and intangible assets, allowances pertaining to the allowance for doubtful accounts and advance to suppliers, the valuation of inventories, the impairment of long-lived assets, and the realizability of deferred tax assets. F-9 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) 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. Restricted Cash Restricted cash represents required cash 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. In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts presented in the statement of cash flows. The Company adopted the new standard effective January 1, 2018, using the retrospective transition method. 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. F-10 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) Accounts receivable Accounts receivable are presented 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 historical 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 reserves are 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. 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 Machinery and equipment Transportation equipment Office equipment Electronic equipment 20 years 5 - 10 years 4 - 5 years 4 - 5 years 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. F-11 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) Intangibles assets, net Intangible assets are acquired individually or as part of a group of assets, and are initially recorded at their fair value. The cost of a group of assets acquired in a transaction is allocated to the individual assets based on their relative fair values. The estimated useful lives of the Company’s intangible assets are as follows: Licenses and permits Software Land use right Patents Estimated Useful Life Indefinite 5 - 10 years 50 years 10 years The Company evaluates intangible assets for impairment whenever events or changes in circumstances indicate that the assets might be impaired. The Company evaluates licenses and permits for impairment at least annually or whenever indicators of impairment are present. For the year ended December 31, 2019, the Company recorded an impairment of $1,103,332 for the licenses and permits acquired from the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors) in fiscal 2017. There was no intangible assets impairment as of and for the years ended December 31, 2018 and 2017. Goodwill Goodwill represents the excess of the consideration over the fair value of the net assets acquired at the date of acquisition. Goodwill is not amortized but rather tested for impairment at least annually at the reporting unit level by applying a fair-value based test in accordance with accounting and disclosure requirements for goodwill and other indefinite-lived intangible assets. This test is performed by management annually or more frequently if the Group believes impairment indicators are present. The Group has the option to assess qualitative factors first to determine whether it is necessary to perform the two-step test in accordance with ASC 350-20, Intangibles - Goodwill and Other. If the Group believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, the two-step quantitative impairment test described above is required. Otherwise, no further testing is required. In the qualitative assessment, the Group considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. In performing the two-step quantitative impairment test, the first step compares the carrying amount of the reporting unit to the fair value of the reporting unit based on estimated fair value using a combination of the income approach and the market approach. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and the Group is not required to perform further testing. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then the Group must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying amount of the goodwill is greater than its implied fair value, the excess is recognized as an impairment loss in general and administrative expenses. For the year ended December 31, 2019, the Company wrote off the goodwill acquired from the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors) in fiscal 2017 of $8,480,668. F-12 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) 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. 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 Group 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. Customer Deposits Customer deposits represent amounts received from customers in advance of shipments relating to the sales of the Company’s products. Due to Third Parties Due to third parties represent amounts the Company borrowed from third parties for working capital purpose. The due to third parties balance are unsecured, interest-free and due upon demand. As of December 31, 2019 and 2018, the due to third parties balance amounted to $287,200 and $3,253,253, respectively. Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases. 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 this standard 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 new standard has no material effect on the consolidated financial statements as the Company does not have a lease with a term longer than 12 months. F-13 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Revenues for the years ended December 31, 2019 and 2018 were presented under ASC 606, and revenues for the year ended December 31, 2017 was not adjusted and continue to be presented under ASC Topic 605, Revenue Recognition. 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). 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 market 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-14 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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: US$: RMB exchange rate Comprehensive Income (loss) December 31, 2019 $ $ Period End Average 0.1436 Period End 0.1448 Average December 31, 2018 $ $ 0.1513 Period End 0.1454 Average December 31, 2017 $ $ 0.1537 0.1478 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. F-15 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) 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 for the years ended December 31, 2019, 2018 and 2017. 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. There were no material uncertain tax positions as of December 31, 2019 and 2018. All tax returns since the Company’s inception are subject to examination by tax authorities. 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. For the years ended December 31, 2019, 2018 and 2017, there were 1,078,045 warrants not included in the diluted loss per share as they would be anti-dilutive. F-16 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) 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. Reclassification Due to business strategy change, during the year ended December 31, 2018, the Company closed Lishui Zhongzhu and Tantech Babiku, and during the year ended December 31, 2019, the Company sold Tantech Energy. In connection with the discontinued operations of the business, certain prior period amounts have been reclassified to conform to the current period presentation. 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 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 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. 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. 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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of ASU 2016-13 on its consolidated financial statements. F-17 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 – Summary of significant accounting policies (continued) Recent accounting pronouncements (continued) In February 2018, the FASB issued ASU 2018-02, which allows a reclassification from accumulated other comprehensive income to retained earnings for adjustments to tax effects that were originally recorded in other comprehensive income due to changes in the U.S. federal corporate income tax rate resulting from the enactment of the U.S. tax reform legislation, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act). The Company does not believe this guidance has a material impact on its consolidated financial statements. In March 2018, the FASB issued ASU 2018-05 — Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”), which amends the FASB Accounting Standards Codification and XBRL Taxonomy based on the Tax Cuts and Jobs Act (the “Act”) that was signed into law on December 22, 2017 and Staff Accounting Bulletin No. 118 (“SAB 118”) that was released by the Securities and Exchange Commission. The Act changes numerous provisions that impact U.S. corporate tax rates, business-related exclusions, and deductions and credits and may additionally have international tax consequences for many companies that operate internationally. The Company does not believe this guidance has a material impact on its consolidated financial statements. On June 20, 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which aligns the accounting for share-based payment awards issued to employees and nonemployees. Under ASU No. 2018-07, the existing employee guidance will apply to nonemployee share-based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. In addition, the contractual term will be able to be used in lieu of an expected term in the option-pricing model for nonemployee awards. The new standard is effective for us on January 1, 2019. Early adoption is permitted, including in interim periods, and should be applied to all new awards granted after the date of adoption. The Company does not believe this guidance has a material impact on its consolidated financial statements. In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for public entities for fiscal years beginning after December 15, 2019, with early adoption permitted for any removed or modified disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company does not expect this guidance will have a material impact on its consolidated financial statements. 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 is currently evaluating the effect of adopting this ASU on the Group’s 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 position, statements of operations and cash flows. F-18 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 – Variable Interest Entity The VIE contractual arrangements Wangbo, Shangchi Automobile and its subsidiary, Shenzhen E-Motors, 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. 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 pay service fees equal to 95% of their 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. 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. F-19 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 – Variable Interest Entity (continued) 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. The following assets and liabilities of the consolidated VIE were included in the accompanying consolidated financial statements of the Company as of December 31, 2019 and 2018 after elimination of intercompany balances: December 31, 2019 December 31, 2018 Current assets Cash and cash equivalents Restricted cash Accounts receivable, net Prepaid taxes Inventories, net Advances to suppliers, net Prepaid expenses and other receivables, net Total Current Assets Non-current assets Property, plant and equipment, net Manufacturing rebate receivable Intangible assets, net Goodwill Total Assets Current liabilities Bank acceptance notes payable Accounts payable Customer deposits Taxes payable Due to related parties Accrued liabilities and other payables Total Current Liabilities Non-current liabilities Deferred tax liability Total Liabilities $ $ $ $ F-20 70,420 $ 205,520 795,240 894,051 239,222 93,241 73,378 2,371,072 1,139,398 7,746,116 12,764,272 - 24,020,858 $ 205,520 $ 1,165,718 113,657 - 943,584 442,280 2,870,759 1,784,875 4,655,634 $ 33,638 2,121,377 2,033,535 936,579 1,205,280 14,655 70,074 6,415,138 1,388,749 9,795,512 15,056,810 8,861,361 41,517,570 2,121,377 1,878,713 35,749 13,703 1,233,155 614,150 5,896,847 2,053,512 7,950,359 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 4 — Liquidity For the year ended December 31, 2019, the Company had a significant decrease in net income. In addition, the Company closed Babiku and Zhongzhu, and sold Tantech Energy’s remaining operation due to business strategic changes during the years ended December 31, 2019 and 2018. All of these events had significant impact on the Company’s operations. For its consumer product sector, the Company significantly cut its sales to supermarket customers because of long-aged accounts receivable from these supermarket customers as online shopping has become increasingly popular. The Company has been experiencing longer collection periods. That leads to higher balances of accounts receivable as compared to prior years. Meanwhile, the EV sector is also experiencing delays of government rebate processing time and reduction of the amount of government rebates on eligible vehicles. Due to a successful equity financing which resulted in net proceeds of $5.6 million in September 2017, the Company still had approximately $12.4 million cash on hand as of December 31, 2019. Although the Company maintains a positive working capital as of December 31, 2019 and generated positive cash flows from its continued operations during the year ended December 31, 2019, 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 new EV business. Without additional equity financing, the Company may heavily rely on bank borrowings or shareholder/related party loans to fund its working capital needs. As of December 31, 2019 and 2018, the Company had a short-term loan balance of approximately $6.9 million and $7.7 million, respectively. In addition, the Company had bank acceptance notes payable balance of approximately $0.2 million and $2.1 million as of December 31, 2019 and 2018, respectively. Any failure to renew these bank borrowings upon their maturities could have an adverse impact on the Company’s operations. The Company currently plans to fund its operations mainly through cash flow from its operations, 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 other customers and suppliers and expects to fully collect or utilize the rest of prepayment balance in 2020. The Company is also working closely with the local government to speed up the collection process of the outstanding government rebate balance in 2020. With disposal of its EDLC business and placing focus on manufacturing of more marketable consumer products, the Company is shifting its strategy to cut back costs and ensure profitability. Although the Company is currently not generating net income from its EV sector, it has been focusing on reducing the costs and expenses and developing other non-rebate alternative energy products. The Company plans to fund this sector through additional private placement and continued support from the parent company even without timely receipt of government rebate. The principal shareholder of the Company, along with the affiliated entity, Forasen Group, has made pledges 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. F-21 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 – Discontinued operations On December 14, 2017, the Company entered into a sale agreement and related agreements (the “EDLC Agreements”) to transfer its Electric Double-Layer Capacitor (“EDLC”) carbon business (including intellectual property rights and equipment) to Zhejiang Apeikesi Energy Co., Ltd. (the “Buyer”), a PRC start-up company controlled by Dr. Zaihua Chen, the Registrant’s former Chief Technology Officer. Pursuant to the EDLC Agreements, total purchase price was approximately $2.5 million (RMB 16 million) (the “Purchase Price”). The purchase price is payable in ten years with initial payment of approximately $0.7 million (RMB 4.48 million) due in fiscal 2017. The remaining purchase price shall be paid in nine equal installments in the following nine years. The Buyer is required to pay annual interest on the remaining purchase price at the PRC prime borrowing rate. On June 26, 2019, the Company entered a share transfer agreement to sell all of its shares in Tantech Energy to an unrelated third party with a consideration of RMB 6,500,000 (approximately US$941,000). The Company completed the disposition process in July 2019. The Company recorded a loss of $569,891 on disposal of Tantech Energy which was included in the loss from disposal of discontinued operations on statements of comprehensive income (loss). During the year ended December 31, 2018, the Company closed the business operation of Lishui Zhongzhu and Tantech Babiku, due to business strategy change. In connection with the discontinued operations of the above businesses, the revenue and expenses for the year ended December 31, 2017 have been retrospectively reclassified as discontinued operations. The aggregated financial results of the discontinued business are set forth below. December 31 2019 December 31 2018 Cash and cash equivalent Accounts receivable Inventory Advances to suppliers Prepaid value-added taxes Other receivables Total current assets from discontinued operations Accounts receivable from EDLC business Property, plant and equipment, net Intangible assets, net Total non-current assets from discontinued operations Total assets from discontinued operations Accounts payable Customer deposits Taxes payable Accrued liabilities and other payables Total current liabilities from discontinued operations Total liabilities from discontinued operations F-22 $ $ - $ - - - - - - - - - - - - - - - - - $ 32,919 5,257,684 475,827 2,647,415 72,742 26,567 8,513,154 1,235,489 6,012,285 1,310,741 8,558,515 17,071,669 1,038,888 337,743 140,212 145,409 1,662,252 1,662,252 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 – Discontinued operations (continued) Revenue Cost of revenues Gross profit (loss) Operating expenses (Reversal of) Bad debt provision Income (loss) from operations Other income, net Income before income taxes Income taxes Income from discontinued operations, net of tax Note 6 – Accounts receivable Accounts receivable consisted of the following: Accounts receivable – non-related parties Allowance for doubtful accounts Accounts receivable, net For the period from January 1 to July 31, 2019 Year ended December 31, 2018 Year ended December 31, 2017 3,803,430 $ 4,048,640 (245,210) 629,525 (1,144,417) 269,682 797 270,479 - 270,479 $ 9,107,922 $ 9,116,707 (8,785) 3,164,918 (1,477,631) (1,696,072) 1,779,439 83,367 - 83,367 $ 4,189,190 2,097,436 2,091,754 1,270,723 2,916,445 (2,095,414) 2,168,132 72,718 7,168 65,550 $ $ December 31 2019 December 31, 2018 $ $ 45,083,689 $ (5,731,281) 39,352,408 $ 37,177,953 (4,682,592) 32,495,361 The movement of allowance for doubtful accounts are as follows for the years ended December 31, 2019 and 2018: Balance at beginning of year Addition to allowance for doubtful accounts Translation adjustments Balance at end of year Note 7 – Inventory Inventory consisted of the following: Raw materials Finished products Work in process Total Inventory Years ended December 31, 2019 2018 4,682,592 $ 1,286,997 (238,308) 5,731,281 $ 3,794,065 947,770 (59,243) 4,682,592 December 31, 2019 December 31, 2018 515,658 $ 79,269 700 595,627 $ 1,619,504 261,283 76,271 1,957,058 $ $ $ $ For the years ended December 31, 2019, 2018 and 2017, the Company recorded inventory write –offs in the amounts of $1,030,236, $700,379 and $13,908, respectively. F-23 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 8 – Advances to suppliers December 31, 2019 December 31, 2018 Advances to suppliers Allowance for doubtful accounts Advances to suppliers, net Less: Advances to suppliers, non-current Advances to suppliers, current $ $ 14,596,906 $ (1,517,017) 13,079,889 - 13,079,889 $ The movement of allowance for doubtful accounts are as follows for the years ended December 31, 2019 and 2018: 15,813,997 (1,426,769) 14,387,228 - 14,387,228 627,151 809,411 (9,793) 1,426,769 Years ended December 31, 2019 2018 1,426,769 $ 162,859 (72,611) 1,517,017 $ December 31, 2019 December 31, 2018 430,800 $ (430,800) - $ 453,900 (453,900) - Balance at beginning of year Addition to allowance for doubtful accounts Translation adjustments Balance at end of year Advances to suppliers – non-current Zhibo Jieli Special Battery Material Co., Ltd * Allowance for doubtful accounts Advances to suppliers – non-current, net $ $ $ $ * representing the prepayments made to acquire machinery. F-24 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 9 – 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 rebate is paid to the Company on behalf of our customer for a portion of selling price, for which, our customer does not need to pay at the time of purchase. 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 listed, Shangchi Automobile (formerly known as Suzhou E-Motors) was eligible for approximately $6,000 and $29,400 in government manufacturing rebates for each of the qualifying electric vehicles sold during the years ended December 31, 2018 and 2017, respectively. Shangchi Automobile didn’t sell any electric vehicles during the year ended December 31, 2019. The Company sold nil, 109 and 100 qualified electric vehicles during the years ended December 31, 2019, 2018 and 2017, respectively and recognized $Nil, $644,959 and $2,942,190 manufacturing rebate income as part of revenue and corresponding receivable for the years ended December 31, 2019, 2018 and 2017, respectively, because the management believes that the electric vehicles sold met all the criteria set by the government and the collection of these manufacturing rebates is reasonably assured. As of December 31, 2019, the manufacturing rebate receivable was $7,746,116 (RMB 53,942,315), including $4,250,560 (RMB 29,600,000) of manufacturing rebate receivable related to qualified electric vehicles sold in fiscal 2016, $2,858,582 (RMB 19,906,560) of manufacturing rebate receivable related to qualified electric vehicles sold in fiscal 2017 and $636,974 (RMB 4,435,755) of manufacturing rebate receivable related to qualified electric vehicles sold in fiscal 2018. The Company has not received the full payment of those eligible government rebates for the sales made in the fiscal year 2016 due to the recent slower processing of rebates. The Company is also working closely with the local government to speed up the collection process of the outstanding government rebate balance in 2020. Note 10 – Property, plant and equipment, net Property, plant and equipment stated at cost less accumulated depreciation consisted of the following: Building Machinery and Production equipment Electronic equipment Office equipment Automobiles Construction in progress Subtotal Less: Accumulated depreciation Property, plant and equipment, net December 31, 2019 December 31, 2018 $ $ 5,199,348 $ 1,901,886 240,606 55,961 501,156 117,014 8,015,971 (5,315,937) 2,700,034 $ 5,473,555 2,012,061 203,491 55,407 527,485 121,255 8,393,254 (5,152,634) 3,240,620 Depreciation expense was $703,113, $1,049,274 and $613,296 for the years ended December 31, 2019, 2018 and 2017, respectively, among which $462,639, $628,144, and $576,953 were for continuing operations. As of December 31, 2019, and 2018, building with net book value of $966,201 (all from continuing operations) and $7,139,561 (among which $1,149,156 from continuing operations and $5,990,405 from discontinued operations), respectively, were pledged as collateral for bank loans (Note 12). F-25 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 – Intangible assets, net Software Electric vehicle registered license** Land use rights* Patents** Subtotal Less: Accumulated amortization Intangible assets, net December 31, 2019 December 31, 2018 $ $ 24,314 $ 11,899,171 287,800 4,308,000 16,519,285 (3,560,268) 12,959,017 $ 25,619 13,690,078 303,232 4,539,000 18,557,929 (3,289,867) 15,268,062 *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 two land use rights from the local government in December 2002 and September 2008 for periods of 50 years. As of December 31, 2019, and 2018, land use rights with net book value of $194,745 (all from continuing operations) and $1,521,993 (among which $211,252 from continuing operations and $1,310,741 from discontinued operations), respectively, were pledged as collateral for bank loans (Note 12). The land use rights are amortized over 50 years and the software is amortized over 5 years. ** Electric vehicle registered license and patents on specialty electric vehicles resulted from the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors). For the year ended December 31, 2019, the Company recorded an impairment of $1,103,332 for the registered license. Amortization expense for intangible assets totaled $459,898, $602,959 and $201,647 for the years ended December 31, 2019, 2018 and 2017, respectively, among which $441,489, $443,318 and $201,647 were for continuing operations. Note 12 – Short-term bank loans The Company’s short-term bank loans consist of the following: Loan payable to Bank of China Lishui Branch Loan payable to SPD Bank Lishui Branch Total December 31, 2019 December 31, 2018 $ $ 4,132,808 $ 2,728,400 6,861,208 $ 4,808,314 2,874,700 7,683,014 On February 26, 2019, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $1,436,000 (RMB 10 million) for one year with annual interest rate of 4.35%. The purpose of the loan was for working capital needs. The loan was guaranteed by Tantech Bamboo, two individual related parties, Zhengyu Wang, Chairman of the Board and previous CEO of the Company and his wife, Yefang Zhang and a third party, Zhejiang Meifeng Tea Industry Co., Ltd. The loan was also collateralized by two properties owned by Zhengyu Wang and Yefang Zhang. The loan was fully repaid upon maturity in January 2020. On March 18, 2019, Tantech Bamboo entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $2,696,808 (RMB 18.78 million) for one year with annual interest rate of 6.05%. 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 $3.7 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 Lishui Jiuanju Trading Co., Ltd., the president of which was also the present CEO and previous COO of the Company. The loan was fully repaid upon maturity in January 2020. F-26 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12 – Short-term bank loans (continued) On November 4, 2019, Tantech Bamboo entered into a short-term loan agreement with Shanghai Pudong Development Bank (Lishui Branch) to borrow $ 2,728,400 (RMB 19 million) with fixed annual interest rate of 5.22% and mature date of April 30, 2020. The purpose of the loan was to fund working capital needs. The loan was guaranteed by three related parties, Zhengyu Wang, Chairman of the Board and previous CEO 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 $4.2 million (RMB29,250,000). The loan was fully repaid upon maturity in April 2020. As of December 31, 2019, total bank loans payable amounted to $6,861,208. On August 16, 2018 and August 20, 2018, Tantech Bamboo entered into two short-term loan agreements with Bank of China (Lishui Branch) to borrow $1,513,000 (RMB 10 million) and $1,328,414 (RMB 8.78 million) for seven months with a fixed annual interest rate of 6.01% and 6.06%, respectively. The purpose of the loans was to fund working capital needs. The loans were collateralized by building and land use right of Tantech Bamboo with maximum guaranteed amount up to approximately $3.9 million (RMB25,570,000) as of December 31, 2018. These two loans were also guaranteed by two individual related parties, Zhengyu Wang, Chairman of the Board and previous CEO of the Company and his wife, Yefang Zhang. In addition, loan principal of $1,513,000 (RMB 10 million) was further guaranteed by a related party, Lishui Jiuanju Trading Co., Ltd., the president of which was also the present CEO and previous COO of the Company. These two loans were fully repaid upon maturity in March 2019. On August 1, 2018, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow $1,966,900 (RMB 13 million) for seven months with a fixed annual interest rate of 6.1%. 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 a third party, Zhejiang Meifeng Tea Industry Co., Ltd. The loan was also collateralized by a property owned by Zhengyu Wang and Yefang Zhang. The loan was fully repaid upon maturity in February 2019. On November 23, 2018, Tantech Bamboo entered into a short-term loan agreement with Shanghai Pudong Development Bank (Lishui Branch) to borrow $2,874,700 (RMB 19 million) for a year with fixed annual interest rate of 6.96%. The purpose of the loan was to fund working capital needs. The loan was collateralized by building and land use right of Tantech Energy with maximum guaranteed amount up to approximately $4.4 million (RMB29,250,000) as of December 31, 2018. The loan was also 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. This loan was fully repaid upon maturity in November 2019. As of December 31, 2018, total bank loans payable amounted to $7,683,014. For the years ended December 31, 2019, 2018 and 2017, the interest expense related to bank loans was $421,646, $378,857 and $479,358, respectively. F-27 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 one year. These notes are negotiable documents issued 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, 2019, and 2018, deposits of $205,520 and $2,121,377 were reported as restricted cash on balance sheet. Bank acceptance notes payable consisted of the following: December 31, 2019 December 31, 2018 Bank acceptance notes payable issued by Bank of Zhang Jiagang Leyu Branch Bank acceptance notes payable issued by SPD Bank Zhang Jiagang Branch Total (a) (b) $ $ - $ 205,520 205,520 $ 2,121,377 - 2,121,377 (a) Bank acceptance notes payable of $2,121,377 (RMB14,021,000) issued by Bank of Zhang Jiagang Leyu Branch with due dates from February 7, 2019 to June 28, 2019. 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. (b) Bank acceptance notes payable of $205,520 (RMB1,431,200) issued by Shanghai Pudong Development Bank Zhang Jiagang Branch with due date on January 12, 2020. 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. F-28 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14 – Related Party Balances and Transactions The balances due to related parties were as follows: December 31, 2019 December 31, 2018 Dr. Henglong Chen and his affiliates * Forasen Group and its affiliates, controlled by Mr. Zhengyu Wang, Chairman and previous CEO of the Company until December 6, 2019 Total $ $ 932,616 $ 693,504 1,626,120 $ 1,227,773 874,402 2,102,175 * Dr. Henglong Chen is the original shareholder of Shangchi Automobile (formerly known as Suzhou E-Motors). The Company acquired his 70% equity interest in Shangchi Automobile and issued 2,500,000 restricted shares of Tantech’s common stock to him in connection with the acquisition of Shangchi Automobile. As of December 31, 2019 and 2018, Dr. Henglong Chen and his affiliates advanced $932,616 and $1,227,773 to the Company for its working capital purpose, respectively. As of December 31, 2019 and 2018, the Company also borrowed $693,504 and $874,402 from Forasen Group and its affiliates, controlled by Mr. Zhengyu Wang, Chairman and previous CEO of the Company, for working capital purpose. For the year ended December 31, 2017, the Company borrowed $1,537,000 from Mr. Yulong Chen, a shareholder of the Company for working capital purpose. The balance was fully repaid during the year ended December 31, 2018. All balances of due to the related parties were unsecured, interest-free and due upon demand. The Company’s major shareholder Mr. Zhengyu Wang and his wife Ms. Yefang Zhang, as well as related party entities controlled by Mr. Wang, provided guarantees to the Company’s bank loans (Note 12). Note 15 – Commitments and Contingencies Guaranty provided for related party In July 2017, Tantech Energy provided a guarantee with a bank on behalf of Forasen Group for maximum amount of approximately $8 million (RMB 57,070,000) by pledging certain land and building as the collateral for the loan and notes. The guarantee will expire on July 23, 2020. In March 2019, Tantech Bamboo provided a guarantee with a bank for Zhejiang Forasen Food Co., Ltd. (“Forasen Food”) for maximum amount of approximately $1.4 million (RMB 10 million) by pledging certain land and building as the collateral for the loan and notes. The guarantee will expire on March 4, 2022. Forasen Food is controlled by Ms Yefang Zhang who is the Company’s director. Operating lease Shangchi Automobile leased certain factory facilities under operating leases through May 9, 2019. The annual rent under operating lease agreement was approximately $144,000 (RMB 1 million). This agreement was renewed for the period from May 10, 2019 to August 31, 2019 with daily rent of approximately $400 (RMB2,740). On August 10, 2019, Shangchi Automobile signed a new operating lease agreement with the landlord for one year until August 9, 2020 with annual rent of approximately $144,000 (RMB 1 million). Shenzhen E-Motors leased office space under operating leases for one year from November 12, 2018 to November 11, 2019 with annual rent of approximately $13,500 (RMB93,600). The lease agreement was renewed for another year until November 11, 2020. 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 with rent free for the whole period in 2019. This agreement was renewed for another year from January 1, 2020 to December 31, 2020 with annual rent of approximately $178,000 (RMB1,238,784). The rental expense for the years ended December 31, 2019, 2018 and 2017 were $167,526, $139,507 and $73,184, respectively. F-29 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 15 – Commitments and Contingencies (continued) Contingency In May 2018, our wholly owned subsidiary Tantech Bamboo signed an 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 $4.2 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 $13 million (RMB 90 million), and all the co-guarantors including Tantech Bamboo jointly and severally guarantee the payment obligation regarding the $13 million (RMB 90 million) and other possible fees, for three years from June 30, 2020, the due date of the share purchase payment obligation. The other third party has paid approximately $4.6 million (RMB 32.06 million) and approximately $8.4 million (RMB 57.94 million) remains unpaid. Accordingly, in June 2020, Lishui Jiuanju Commercial Trade Co., Ltd. (“LJC”), another related party, issued to Tantech Bamboo an anti-guaranty guaranty to guarantee Tantech Bamboo’s potential payment obligation, and a bank statement of approximately $10.1 million (RMB 70 million). Therefore, the Company’s PRC counsel believes Tantech Bamboo’s legal risk has been relieved to some extent. The company believes that it is more likely than not that LJC will perform its guaranty obligation and Tantech Bamboo will not need to make the payment. F-30 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16 – Stockholders’ equity On July 12, 2017, in connection of the acquisition of Shangchi Automobile (formerly known as Suzhou E-Motors), the Company issued 2,500,000 shares of its common stock to the original shareholder of Shangchi Automobile. These shares are restricted for minimum twelve months after the completion of the acquisition. The fair value of these shares was $6,500,000 based on the share price of $2.6 on July 12, 2017. On September 27, 2017, the Company and certain institutional investors entered into a securities purchase agreement in connection with the September 2017 Offering, pursuant to which the Company agreed to sell an aggregate of 1,891,307 common shares and warrants to initially purchase an aggregate of 1,078,045 common shares, consisting of 945,654 investor warrants and 132,391 placement agent warrants. The common share purchase price was $3.45 per common share. On September 29, 2017, the Company completed the September 2017 Offering. After deducting offering expenses, the Company received $5,968,208 in net proceeds from the sale of the common shares. On September 19, 2018, the Company issued 150,000 shares of common stock to three individuals for consulting services to be provided for the period from September 19, 2018 to May 18, 2019, which were valued at $243,000 based on the quoted market price at issuance. The entire cost of $243,000 was amortized over the 8-month service period using straight line method. Warrants registered in September 2017 Offering In connection with the September 2017 offering, the Company registered and issued warrants to purchase an aggregate of 1,078,045 common shares, consisting of 945,654 investor warrants (the “Investor Warrants”) and 132,391 placement agent warrants (the “Placement Agent Warrants”). All warrants carry a term of 5 years. The Investor Warrants are exercisable at $4.25 per share and the Placement Agent Warrants are exercisable at $4.675 per share. 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. Management determined that these warrants are equity instruments because the warrants are indexed to its own stock. The warrants were recorded at their fair value on the date of grant as a component of stockholders’ equity. As of December 31, 2019, the total number of warrants outstanding was 1,078,045 with remaining life of 3 years. No warrants were exercised since the issuance date. F-31 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 17 – Noncontrolling Interests A reconciliation of non-controlling interest as of December 31, 2019 and 2018 is as follows: Beginning Balance Proportionate shares of net loss Foreign currency translation adjustment Total December 31, 2019 December 31, 2018 $ 7,918,096 $ (3,601,728) 29,848 8,799,460 (896,769) 15,405 $ 4,346,216 $ 7,918,096 As of December 31, 2019 and 2018, 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 E-Motors. F-32 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 18 – Long term investments On January 10, 2018, the Company invested approximately $18.2 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 southwestern province of Guizhou province, China. Libo Haokun obtained the permit to mine the quarry from the local government in September 2016. 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 RMB 46.323 million (approxiamately $6.65 million). The consideration equals 18% of RMB 257.354 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. It is renewing a government-issued mining permit which expired on May 20, 2019. The mining permit would provide it the right to mine a 0.2607-square-kilometer basalt quarry in Fuquan City, Guizhou Province, China. 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 RMB 257.354 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. On December 17, 2019, Lishui Tantech entered into a supplementary agreement to the Investment Agreement (the “Supplementary Agreement,” and collectively with the Investment Agreement, the “Agreements”) with Jingning Zhonggang and Lishui Zhonggang Mining Co., Ltd. (“Lishui Zhonggang”). Jingning Zhonggang is a wholly-owned subsidiary of Lishui Zhonggang. Pursuant to the Supplementary Agreement, if Fuquan Chengwang is not able to receive the renewed mining permit by June 30, 2020, Lishui Tantech has the option to terminate the Investment Agreement and Jingning Zhonggang is obligated to return all of the consideration paid by the Company within 30 days after the termination date and the interest calculated by the relevant loan rate of the People’s Bank of China. Lishui Zhonggang, as the only shareholder of Jingning Zhonggang, will be jointly and severally liable for Jingning Zhonggang’s liabilities under the Agreements. Due to COVID-19 pandemic in early 2020, the permit renewal process has been delayed. Accordingly, the Company is in the process of negotiating an investment agreement amendment to extend the renewal due date from June 30, 2020 to December 31, 2020. 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. As the Company did not have significant influence over the equity investee, the investments were accounted for using the cost method. For the years ended December 31, 2019 and 2018, the Company did not recognize any impairment losses for the long term investments. F-33 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 19 – Taxes Prepaid taxes Prepaid taxes as of December 31, 2019 and 2018 consist of the following: Prepaid corporation income tax Prepaid value-added tax Total Taxes Payable Taxes payable as of December 31, 2019 and 2018 consist of the following: Corporation income tax payable Other tax payable Total Corporation Income Tax (“CIT”) December 31, 2019 December 31, 2018 356,121 $ 2,040,228 - 2,136,988 2,396,349 $ 2,136,988 December 31, 2019 December 31, 2018 - $ 102,704 227,386 117,177 102,704 $ 344,563 $ $ $ $ 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. 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 Energy was registered in the PRC and is also subject to corporate income tax at a reduced rate of 15% starting from 2013 when it was approved by local government as a high-tech company. Shangchi Automobile was approved by local government as a high –Tech company on December 7, 2017 and was subject to income tax rate of 15%. Lishui Tantech, Shenzhen E-Motors, Jiamu, Jiyi, Wangbo, Bamboo Tourism, Tantech Charcoal, Tantech Babiku and Tanbo Tech are all subject to income tax at unified rate of 25%. The impact of the tax holidays noted above decreased foreign taxes by $381,033, $158,424 and $899,503 for the years ended December 31, 2019, 2018 and 2017, respectively. The benefit of the tax holidays on net income (loss) per share (basic and diluted) was $0.01, $0.01 and $0.03 for the years ended December 31, 2019, 2018 and 2017, respectively. The following table reconciles PRC statutory rates to the Company’s effective tax rates for the years ended December 31, 2019, 2018 and 2017: Statutory PRC income tax rate Favorable tax rate impact (a) Permanent difference and others Changes of deferred tax assets valuation allowances Total Years ended December 31, 2018 2019 2017 25% (11)% 4% (22)% (4)% 25% (8)% (1)% 35% 51% 25% (10)% 2% 17% 34% (a) Two of the Company’s subsidiaries, Tantech Bamboo and Shangchi Automobile are subject to tax rate of 15%. F-34 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 19 – Taxes (continued) The provision for income tax consisted of the following: Current Deferred Total $ $ Significant components of deferred tax assets and liabilities are as follows: Deferred tax assets: Allowance for doubtful accounts and other reserves and impairments Valuation allowance Total Deferred tax liability: Increase in fair value of intangible assets acquired through acquisition Impairment of intangible assets acquired through acquisition Total 2019 Years ended December 31, 2018 1,031,158 $ - 1,031,158 $ 529,162 $ (165,500) 363,662 $ 2017 1,334,254 193,749 1,528,003 December 31, 2019 December 31, 2018 4,426,306 $ (4,426,306) - $ 2,389,719 (2,389,719) - 1,949,004 $ (164,129) 1,784,875 $ 2,053,512 - 2,053,512 $ $ $ $ At December 31, 2019 and 2018, 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, 2019 and 2018, the valuation allowance was $4,426,306 and $2,389,719, respectively. The net change in the valuation allowance was an increase of $2,036,587, $707,013 and $1,212,303 for the years ended December 31, 2019, 2018 and 2017, respectively. The Company’s management reviews this valuation allowance periodically and makes adjustments as necessary. F-35 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Management, including the chief operating decision maker, reviews operation results of consumer products, trading and electric vehicles separately. The Company has determined that it has three operating segments as defined by ASC 280, “Segment Reporting”: consumer products, electric vehicles, and trading. Consumer products segment manufactures and sells Charcoal Doctor branded products and BBQ charcoal in China. Trading segment conducts trading businesses related to bamboo charcoal products. Electric Vehicle segment (“EV”) was acquired in July 2017. 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, 2019, 2018 and 2017, respectively. Revenue from external customers Revenue from inter segment Cost of revenue Gross profit Interest Expenses Depreciation & amortization Capital expenditure Segment assets Segment profit 2019 Consumer product 2018 $ $ 45,821,163 $ (1,005,029) 40,138,663 5,682,500 355,400 276,170 6,787,833 81,944,714 2,430,387 $ 22,388,827 $ (7,790,931) 14,347,896 8,040,931 292,996 420,301 13,512,820 84,899,512 4,135,969 $ 2017 31,889,149 $ (2,736,204) 23,693,289 8,195,860 290,383 454,178 74,202 83,024,439 5,258,037 $ 2019 3,379,705 $ - 2,270,766 1,108,939 71,979 - - 9,487,143 (83,910) $ Trading 2018 3,776,842 $ - 3,290,089 486,753 126,030 - 209,721 7,777,390 (134,511) $ 2017 1,829,475 $ (24,550) 1,412,062 417,413 124,587 25,345 - 5,988,364 203,157 $ 2019 29,702 $ - 843,641 (813,939) 15,883 627,958 12,106 24,018,920 (12,005,760) $ EV 2018 3,395,730 $ - 3,894,334 (498,604) 207,317 526,725 792,981 41,517,112 (3,004,827) $ 2017 8,578,988 - 6,636,402 1,942,586 136,162 299,075 8,061 49,474,923 (2,513,613) 2019 $ 49,230,570 $ (1,005,029) 43,253,070 5,977,500 443,262 904,128 6,799,939 115,450,777 $ (9,659,283) $ Total 2018 29,561,399 $ (7,790,931) 21,532,319 8,029,080 626,343 947,026 14,515,522 134,194,014 996,631 $ 2017 42,297,612 (2,760,754) 31,741,753 10,555,859 551,044 778,598 82,263 138,487,726 2,947,581 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: Revenue from China Revenue directly from foreign countries Total Revenue Years ended December 31, 2018 29,561,399 $ - 29,561,399 $ 2019 49,230,570 $ - 49,230,570 $ 2017 42,297,612 - 42,297,612 $ $ F-36 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2019, six major customers accounted for approximately 19%, 19%, 18%, 17%, 13% and 12% of the Company’s total sales, respectively. For the year ended December 31, 2018, two major customers accounted for approximately 37% and 12% of the Company’s total sales, respectively. For the year ended December 31, 2017, two major customers accounted for approximately 39% and 8% of the Company’s total sales, respectively. As of December 31, 2019, five customers accounted for approximately 30%, 18%, 18%, 16% and 16% of the Company’s accounts receivable balance. As of December 31, 2018, three customers accounted for approximately 45%, 13% and 11% 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, 2019, three major suppliers accounted for approximately 38%, 20% and 18% of the Company’s total purchases, respectively. For the year ended December 31, 2018, three major suppliers accounted for approximately 33%, 24% and 15% of the Company’s total purchases, respectively. For the year ended December 31, 2017, three major suppliers accounted for approximately 28%, 17% and 16% of the Company’s total purchases, respectively. Note 22 – Subsequent events Bank loans On January 6, 2020, Tantech Bamboo entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $2.6 million (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 $3.7 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 Lishui Jiuanju Trading Co., Ltd., the president of which was also the present CEO and previous COO of the Company. On January 6, 2020, Tantech Charcoal entered into a short-term loan agreement with Bank of China (Lishui Branch) to borrow approximately $1.4 million (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 a 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 $1.4 million (RMB 10 million). On April 27, 2020, Tantech Bamboo entered into a short-term loan agreement with Shanghai Pudong Development Bank (Lishui Branch) to borrow approximately $2.7 million (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 $4.2 million (RMB29,250,000). F-37 TANTECH HOLDINGS LTD AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 22 – Subsequent events (continued) Equity investment 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 RMB 46.50 million (approximately $6.6 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. Corporation structure reorganization On January 2, 2020, Lishui Jikang Energy Technology Co., Ltd. (“Jikang Energy”) was established as a wholly owned subsidiary of Lishui Xincai with authorized share capital of RMB 5 million. Jikang Energy is a holding company and does not conduct any substantial business. On January 3, 2020, Tantech Bamboo transferred all of its shares in its wholly-owned subsidiary Tanbo Tech to Lishui Xincai. On January 10, 2020, Lishui Tantech transferred all of its shares in its wholly-owned subsidiary Tantech Bamboo to Jikang Energy. After the above transfers, Tantech Bamboo becomes the wholly-owned subsidiary of Jikang Energy. Jikang Energy, Tanbo Tech and Tantech Charcoal become the wholly-owned subsidiaries of Lishui Xincai. Stockholders’ equity On March 23, 2020, the Company issued 35,592 shares of common stock 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. The entire cost of $33,812 was amortized over the 6- month service period using straight line method. COVID-19 The Company’s operations are 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. 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. In light of the current circumstances and available information, the Company estimated that for the period from January to May 2020, the Company’s revenues for consumer product segment could be approximately 20% lower as compared to the same period of last year, however, the sales for trading segment increased due to the significant increased demand for bamboo charcoal used for air purification and sanitation products. As of the date of this filing, the COVID-19 coronavirus outbreak in China appears to have slowed down and most provinces and cities have resumed business activities under the guidance and support of the government. However, there is still significant uncertainty regarding the possibility of a second 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. F-38 Party A: Tantech Holdings Ltd. Party B: Wangfeng Yan , ID NO. : XXXXXXXXXXX Employment Agreement According to the relevant provisions of the "Contract Law of the People's Republic of China", both parties A and B reached an agreement on the Exhibit 4.18 employment of Party B as follows. 1. Employment Party A hires Party B as the company's CEO . 2. The responsibilities of Party B: (1) Fully comprehend the resolutions of the board of directors, monitor the implementation process of the resolutions, correct problems in time, and ensure the implementation of the resolutions. (2) Explore market opportunities, preside over the formulation of the company's business objectives and management plans, lead the team to implement, and achieve rapid growth of the group's business and investment returns. (3) Responsible for operating results, organize the implementation of the financial budget plan and profit distribution approved by the board of directors; (4) Establish the organization system and business system of the company, be responsible for the construction of the senior management team, select middle and senior management personnel, and review the setting plan and basic management system of the internal management organization; Responsible for handling major emergencies, reporting to the chairman in time, and handling other important matters authorized by the chairman; (5) Fully preside over the management work of the company, implement the annual performance targets and business development strategic plans and overall marketing planning plans issued by the board of directors, and realize the business management goals; (6) Continuously optimize the human resources allocation of the company and continuously improve the overall organizational capabilities of the company; leaders create an enterprise cultural atmosphere, improve the enterprise identification system, and shape and strengthen the group company values. 3. Hiring time The first appointment period is from December 6, 2019 to December 5, 2022. If the agreement has not expired and the two parties have not proposed not to renew the contract, the agreement shall be deemed to be automatically terminated. 4. Working methods Party B works full-time in Party A, the working hours refer to Party B's personnel system; the place of work is Lishui; Party B can no longer concurrently serve as CEO of other listed companies outside the Forsen system. 5. Treatment and Payment: Treatment: RMB 200,000 one year. The payment method : RMB 15,000 per month Party B ’s travel expenses incurred for Party A ’s work are reported and reimbursed according to the invoice. 6. Confidentiality In view of the nature of Party B ’s work, Party B ’s confidentiality obligations are set out in the Confidentiality Agreement signed by both parties. 7. Settlement of disputes This agreement becomes effective after the official seal is signed by both parties. Disputes arising from the performance of this agreement will be resolved through consultation between the two parties. 8. This agreement is made in duplicate, with the same legal effect, one for each party. Party A (Stamp) Tantech Holdings Ltd Party B (Stamp): Fengwang Yan Date: December 6, 2019 Party A: Tantech Holdings Ltd. Party B: Weilin Zhang , ID NO. : 332529196808143318 Employment Agreement According to the relevant provisions of the "Contract Law of the People's Republic of China", both parties A and B reached an agreement on the employment of Party B as follows. Exhibit 4.19 1. Employment Party A hires Party B as the company's CFO . 2.The responsibilities of Party B: (1) Assist the CEO of the company to formulate the company's development strategy, and provide forward-looking warnings and measures from the directions of finance, capital, risk control, and policy; (2) provide comprehensive financial management from product cost analysis and management, financial control, tax planning, management reports, business analysis and development planning, corporate financing and deployment, and improve the efficiency of capital; (3) Establish and improve financial systems and standards, establish a scientific and systematic financial accounting system and financial monitoring system, and conduct effective internal financial control and enterprise evaluation; (4) Formulate effective financing strategies and plans, including financing schemes, equity strategies, and use various financial tools and financing tools to ensure the company's optimal capital structure; (5) As a senior management of the company, participate in capital operations such as company acquisitions, mergers, and asset restructuring; (6)Familiar with capital market , good relationship with investors and funds, provide financial advice and decision support for the company's major investment, financing, mergers and acquisitions, and participate in risk assessment, guidance, tracking and control; (7) Responsible for providing detailed and clear financial performance and relevant corporate financial and operational status reports to the CEO, board of directors, and investors to provide strategic basis for making business decisions; (8) Supervise fund management reports and final accounts; preside over the preparation and review of various standardized financial statements to provide timely and effective financial analysis models for the company; (9) Review financial statements and submit financial management reports; participate in the review of company legal documents, coordination of legal affairs, compliance and operation. 3. Hiring time The first appointment period is from July 1, 2019 to June 30, 2022. If the agreement has not expired and the two parties have not proposed not to renew the contract, the agreement shall be deemed to be automatically terminated. 4. Working methods Party B works full-time in Party A, the working hours refer to Party B's personnel system; the place of work is Lishui; Party B can no longer concurrently serve as CFO of other listed companies outside the Forsen system. 5.Treatment and Payment: Treatment: RMB 300,000 one year. The payment method : RMB 25,000 per month Party B ’s travel expenses incurred for Party A ’s work are reported and reimbursed according to the invoice. 6. Confidentiality In view of the nature of Party B ’s work, Party B ’s confidentiality obligations are set out in the Confidentiality Agreement signed by both parties. 7. Settlement of disputes This agreement becomes effective after the official seal is signed by both parties. Disputes arising from the performance of this agreement will be resolved through consultation between the two parties. 8. This agreement is made in duplicate, with the same legal effect, one for each party. Party A (Stamp) Tantech Holdings Ltd Party B (Stamp): Weilin Zhang Date: June 26, 2019 Party A: Tantech Holdings Ltd. Party B: Mingqin Dong , ID NO. : 23071119900316001X Employment Agreement According to the relevant provisions of the "Contract Law of the People's Republic of China", both parties A and B reached an agreement on the Exhibit 4.20 employment of Party B as follows. 1. Employment Party A hires Party B as the company's COO . 2.The responsibilities of Party B: (1) As the company's core management, participate in the formulation of company strategies, and promote the implementation of the company's strategic business goals, and are responsible for the results of operations; (2) Comprehensively control the company's business operation management, build operation system, brand marketing system, product system, customer service system and sales system, etc., which can optimize business links in real time according to the operation status and improve business operation efficiency; (3) Implement various business management and marketing management activities to ensure the completion of business and management indicators, accurately locate business ideas based on market trends and development trends, and study and formulate business strategies and guidelines in light of market conditions; (4) Under the guidance of the company's business strategy, conduct market surveys and feedback, comprehensive planning of the business direction, strengthen the company's brand image construction, promote the company's extension, connotation value, improve the company's popularity and brand influence; (5) Lead the internal team building of the enterprise, improve the internal management mechanism and innovative incentive mechanism, optimize the company's human resource allocation, and continuously improve the company's overall organizational capabilities。 (6) Coordinate the relationship between various departments, ensure smooth information, rationally allocate resources of each department, and achieve maximum conversion and output of resources. 3. Hiring time The first appointment period is from December 6, 2019 to December 5, 2022. If the agreement has not expired and the two parties have not proposed not to renew the contract, the agreement shall be deemed to be automatically terminated. 4. Working methods Party B works full-time in Party A, the working hours refer to Party B's personnel system; the place of work is Lishui; Party B can no longer concurrently serve as COO of other listed companies outside the Forsen system(Except New Third Board Company). 5.Treatment and Payment: Treatment: RMB 180,000 one year. The payment method : RMB 15,000 per month Party B ’s travel expenses incurred for Party A ’s work are reported and reimbursed according to the invoice. 6. Confidentiality In view of the nature of Party B ’s work, Party B ’s confidentiality obligations are set out in the Confidentiality Agreement signed by both parties. 7. Settlement of disputes This agreement becomes effective after the official seal is signed by both parties. Disputes arising from the performance of this agreement will be resolved through consultation between the two parties. 8. This agreement is made in duplicate, with the same legal effect, one for each party. Party A (Stamp) Tantech Holdings Ltd Party B (Stamp): Mingqin Dong Date: December 6, 2019 Summary Translation Exhibit 4.21 Lease Agreement between Zhejiang Tantech Energy Technology Co., Ltd. and Zhejiang Tantech Bamboo Technology Co., Ltd. Party A: Zhejiang Tantech Energy Technology Co., Ltd. Party B: Zhejiang Tantech Bamboo Technology Co., Ltd. The two parties signed a Lease Agreement. Party A rented the building to Party B. The house is located in Building 3 #, 4 #, No. 10 Censhan Road, Shuige Industrial Zone,, Lishui City, Zhejiang Province, China ,with an area of 12,904 square meters. The building is used as production and office space for Party B. The rental period of the house is 1 year, from January 1, 2020 to December 31, 2020. The rent is paid every six months. The total annual rent of the house is 1,238,784 yuan. The Agreement is made in duplicate with all parties herein holding one copies each with the same legal effect. Zhejiang Tantech Energy Technology Co., Ltd. (Corporate Chop) By: /s/ Yonghong Wu Zhejiang Tantech Bamboo Technology Co., Ltd. (Corporate Chop) By: /s/ Zhengyu Wang Translation of Lease Agreement Exhibit 4.22 Party A: Zhangjiagang Jinmao Investment Development Co. LTD Party B:Shangchi Automobile Co., Ltd. After negotiation, both parties reached the following agreement on land, housing and other lease matters: 1. Party B rents the 11688 ㎡ workshop, 4515 ㎡ land, train operation, transformer, cable and other facilities of former Chassis Factory of Peony Group located in the Yongli village, Leyu Town, Zhangjiagang City. 2. The lease period: one year, from August 10, 2019 to August 9, 2020. 3. The rent is 1 million yuan one year, which is still the preferential rental price determined by the two parties. The rent is paid semi annually. 4. Party B shall bear all expenses such as electricity, water and sanitation during the lease period. 5. Party B should not damage the facilities in the Premises. If structural change is necessary in the process of decoration or the installation of the equipment does damage to the Premises, Party B should get the prior written approval from Party A. The cost of such change should be borne by Party B. The structural changes that Party B will carry out to the Premises are indicated in the project attached to this Contract. Party A hereby gives its consent to such changes. 6. During the lease period, Party B shall be responsible for the safety inspection, use, maintenance and repair of all the leased assets. Party B should be responsible for the reinstatement works and compensation for the economic losses for the damage of the Premises and loss of its facilities due to the mismanagement of Party B. 7. After the lease expires or the agreement is terminated due to other reasons such as termination of the agreement, Party B must move out within 15 days after the agreement is terminated, and pay all the costs that should be borne by Party B. Party A does not assume any responsibility for compensation, and Party A must be present at the same time as the day of moving out. 8. When the lease expires, Party B should return the leased house land as scheduled. If Party B needs to continue to lease, it should give the written request to Party A two months before the lease expires. right. 9. During the lease period, if the plant land leased by Party A to Party B is sold, auctioned, or subject to other sanctions, Party A shall notify Party B two months in advance. Party B shall cooperate, but Party A shall ensure that the asset transferee gives Party B Enjoy the right to lease within the lease period. 10. If the contractual relationship between the two parties is terminated and Party B does not move out unconditionally within the agreed date, Party A will give Party B a 15-day grace period. The rent for the grace period is calculated at 6000 yuan per day. Party A pays the house usage fee to Party A at twice the original lease price, and it is deemed that Party B authorizes Party A to have the right to move or leave and dispose of all items of Party B, and Party B shall bear the losses incurred. 11. Party B shall abide by the laws and disciplines in its business activities. In the event of violations of the law, Party B shall be responsible for all consequences. 12. During the lease period, both parties should abide by the contract and may not cancel the contract at will. For example, due to government planning, urban construction needs, and local government industrial planning needs, the two parties should obey the government's needs, that is, terminate the lease relationship and handle them in accordance with relevant regulations. 13. If Party B fails to pay the rent or other payables on time during the rental period, Party A has the right to recover from Party B the default penalty of 1% of the daily rent owed; Party A has the right to stop water if it is overdue for more than 10 days. Measures such as power outages can also unilaterally terminate this contract and claim damages in accordance with the aforementioned standards. 14. Party B voluntarily sublet, lend or transfer the leased house land to others for use, or add the house to the body structure, or privately occupy unused house land, or seriously violate other provisions of this contract. Party A has The unilateral party terminates this contract and claims the costs and compensation that should be borne by Party B. 15. If Party A realizes its claims through litigation due to the above-mentioned breach of contract by Party B, Party B shall bear the costs of Party A ’s realization of its claims (including litigation fees, attorney fees, security fees, etc.) 16. Both parties must fully fulfill the obligations stipulated in the contract. If either party breaches the contract, it shall compensate the other party for economic losses in accordance with the law. 17. This contract is made in duplicate, with each party holding one copy, and the contract becomes effective after being signed by the representatives of both parties. Party A Date of signature: Party B Date of signature: Summary Translation Exhibit 4.23 Lease Agreement between Shenzhen Shilian Junhui Real Estate Operation and Management Inc. and Shenzhen Yimao New Energy Sales Co., Ltd. Party A: Shenzhen Shilian Junhui Real Estate Operation and Management Inc. Party B: Shenzhen Yimao New Energy Sales Co., Ltd. The two parties signed a Lease Agreement. Party A rented the place to Party B. The house is located in Suite 510, Floor 5, Tower B, Zhongshe Square, 1028 Buji Rd, Luohu District, Shenzhen City, Guangdong Province, China, with an area of 120 square meters. The place is used as office space for Party B. The rental period of the place is from November 12, 2019 to November 11, 2020. The rent is paid every month. The total annual rent of the house is 7,800 yuan. The Agreement is made in duplicate with all parties herein holding one copies each with the same legal effect. Shenzhen Shilian Junhui Real Estate Operation and Management Inc. (Corporate Chop) By: /s/ Shenzhen Yimao New Energy Sales Co., Ltd. (Corporate Chop) By: /s/ Mingqin Dong TANTECH HOLDINGS LTD List of Subsidiaries and Consolidated Affiliated Entities Country of Incorporation/Formation Ownership Exhibit 8.1 Company Name USCNHK Group Limited EAG International Vantage Capitals Limited Hong Kong Hong Kong Tantech Holdings (Lishui) Co., Ltd. People’s Republic of China Euroasia New Energy Automotive (Jiangsu) Co., Ltd. People’s Republic of China Shanghai Jiamu Investment Management Co., Ltd. People’s Republic of China Wholly owned subsidiary of Tantech Holdings Ltd Wholly owned subsidiary of Tantech Holdings Ltd Wholly owned subsidiary of USCNHK Group Limited Wholly owned subsidiary of EAG International Vantage Capitals Limited Wholly owned subsidiary of EAG International Vantage Capitals Limited Lishui Xincai Industrial Co., Ltd. People’s Republic of China Wholly owned subsidiary of Zhejiang Tantech Bamboo Charcoal Co., Ltd People’s Republic of China Lishui Jikang Energy Technology Co., Ltd. People’s Republic of China Hangzhou Tanbo Technology Co., Ltd. People’s Republic of China Tantech Holdings (Lishui) Co., Ltd. Wholly owned subsidiary of Lishui Xincai Industrial Co., Ltd. Wholly owned subsidiary of Lishui Xincai Industrial Co., Ltd. Wholly owned subsidiary of Lishui Xincai Industrial Co., Ltd. Zhejiang Tantech Bamboo Technology Co., Ltd People’s Republic of China Wholly owned subsidiary of Hangzhou Wangbo Investment Management Co., Ltd. People’s Republic of China Hangzhou Jiyi Investment Management Co., Ltd. People’s Republic of China Lishui Jikang Energy Technology Co., Ltd. Consolidated affiliated variable interest entity controlled solely by Shanghai Jiamu Investment Management Co., Ltd. Wholly owned subsidiary of Shanghai Jiamu Investment Management Co., Ltd. Shangchi Automobile Co., Ltd. (previously called Suzhou Yimao E-Motors Co., Ltd.) People’s Republic of China 51%-owned subsidiary of Shenzhen Yimao New Energy Sales Co., Ltd. People’s Republic of China Hangzhou Wangbo Investment Management Co., Ltd., with the remaining equity interest of 19% and 30% owned, respectively, by Hangzhou Jiyi Investment Management Co., Ltd. and an unrelated third party. Wholly owned subsidiary of Shangchi Automobile Co., Ltd. Exhibit 12.1 I, Wangfeng Yan, certify that: 1. I have reviewed this annual report on Form 20-F of Tantech Holdings Ltd.; CERTIFICATION 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: June 30, 2020 By: /s/ Wangfeng Yan Name: Wangfeng Yan Title: Chief Executive Officer  Exhibit 12.2 I, Weilin Zhang, certify that: 1. I have reviewed this annual report on Form 20-F of Tantech Holdings Ltd.; CERTIFICATION 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: June 30, 2020 By: /s/ Weilin Zhang Name: Weilin Zhang Title: Chief Financial Officer CERTIFICATION Exhibit 13.1 In connection with the Annual Report of Tantech Holdings Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Wangfeng Yan, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 30, 2020 By: /s/ Wangfeng Yan Name: Wangfeng Yan Title: Chief Executive Officer CERTIFICATION Exhibit 13.2 In connection with the Annual Report of Tantech Holdings Ltd. (the “Company”) on Form 20-F for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Weilin Zhang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: June 30, 2020 By: /s/ Weilin Zhang Name: Weilin Zhang Title: Chief Financial Officer 

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