TDH Holdings, Inc. Reports Full Year 2018 Audited Financial Results

QINGDAO, China, May 16, 2019 /PRNewswire/ -- TDH Holdings, Inc. (NASDAQ: PETZ) ("TDH" or the "Company"), a PRC-based company that specializes in the development, manufacturing and sales of various pet food products in China, Asia and Europe, announced today its financial results for the twelve months ended December 31, 2018.

Full Year 2018 Financial Highlights:

• Revenues decreased by 18.3% from $28.98 million to $23.67 million for the year of 2018, with decrease in sales from overseas markets and E-commerce platform was partially offset by increase in sales in domestic market. The decrease in total revenues in 2018 was mainly due to production reduction and delayed delivery resulting from (i) the government mandated production suspension during the second quarter of 2018 in connection with the Shanghai Cooperation Organization Summit that was held in Qingdao City where our facility located, (ii) production plant and equipment relocation, testing and delayed product delivery after relocation of the Company's production facilities during the first quarter of 2018, and (iii) the loss of customer orders due to significant competition in 2018.
• Gross loss was $4.05 million for the year of 2018 as compared to gross profit of $8.30 million for 2017.  This loss was mainly due to (i) an increase in the costs of raw materials, such as chicken, beef and pork, (ii) write-down of obsolete inventories, and (iii) low productivity rates after the relocation of our main production facilities in 2018.
• Operating loss was $14.04 million for the year of 2018 as compared to operating income of $0.27 million for 2017. The decrease in income from operations was the combined result of a decrease in revenues and increases in cost of goods sold and operating expenses.
• Net loss attributable to common stockholders was $14.22 million, or loss per share of $1.49, for the year of 2018 as compared to net income of $0.12 million, or earnings per share of $0.01, for 2017.

Full Year 2018 Financial Results

Revenues

The Company generates its revenues from product sales, mainly including sales for pet chews, dried pet snacks and wet canned pet foods in oversea markets, domestic markets and by e-commerce platform. Revenue consists of the invoiced value for the sales, net of value-added tax ("VAT"), business tax, and applicable local government levies. For the year of 2018, total revenues decreased by $5.31 million, or 18.3%, to $23.67 million from $28.98 million for 2017.  The decrease in total revenues in 2018 was mainly due to production reduction and delayed delivery resulting from (i) the government mandated production suspension during the second quarter of 2018 in connection with the Shanghai Cooperation Organization Summit that was held in Qingdao City where our facility located, (ii) production plant and equipment relocation, testing and delayed product delivery after relocation of the Company's production facilities during the first quarter of 2018, and (iii) the loss of customer orders due to significant competition in 2018.

Overseas sales decreased by $5.36 million, or 25.3%, to $15.83 million for the year of 2018 from $21.19 million for 2017. This decrease was due to the decline in production capacity, and loss of some key customers. Domestic sales increased by $2.02 million, or 96.6%, to $4.10 million for the year of 2018 from $2.09 million for 2017. This increase was mainly due to our effort to expand domestic market. Sales from the e-commerce channel decreased by $1.93 million, or 33.7%, to $3.80 million for the year of 2018 from $5.73 million for 2017, due to the rising raw material costs and our production costs. 

Sales of pet chews decreased by $3.34 million, or 34.8%, to $6.27 million for the year of 2018 from $9.61 million for 2017. Sales of dried pet snacks decreased by $1.24 million, or 8.4%, to $13.61 million for the year of 2018 from $14.85 million for 2017. Sales of wet canned pet food decreased by $0.25 million, or 8.3%, to $2.78 million for the year of 2018 from $3.04 million for 2017. Sales of dental health snacks decreased by $0.36 million, or 42.2%, to $0.50 million for the year of 2018 from $0.86 million for 2017. The foregoing decreases were mainly due to the fact that (i) we did not renew certain sale contracts as the selling prices offered were too low to make a profit, and (ii) our total daily production capacity decreased from 16 tons to 12 tons in 2018 due to the lease expiration for the Canning facility in 2018. Sales of pet chews, dried pet snacks, wet canned pet food, and dental health snacks accounted for 26.5%, 57.5%, 11.8%, and 2.1%, respectively, for the year of 2018, compared to 33.2%, 51.2%, 10.5%, and 3.0%, respectively, for 2017.

Cost of revenues

Cost of revenues consists primarily of raw materials, labor and factory overhead. Cost of revenues increased by $7.04 million, or 34.1%, to $27.73 million for the year of 2018 from $20.68 million for 2017. The increase in cost of revenues was mainly due to increased raw material costs, such as chicken, beef and pork, write-down of obsolete inventories and low productivity after the relocation of one of our main production facilities. As a percentage of revenues, cost of revenues was 117.1% for the year of 2018, compared to 71.4% for 2017.

Gross profit (loss) and gross profit (loss) margin

Gross loss was $4.05 million for the year of 2018, compared to gross profit of $8.30 million for 2017. Gross loss margin was 17.1% for the year of 2018, compared to gross profit margin of 28.6% for 2017.

Operating expense

Operating expense consists of selling expenses, general and administrative expenses and research and development expenses.

Selling expenses decreased by $0.35 million, or 7.1%, to $4.54 million for the year of 2018 from $4.88 million for 2017. The decrease in selling expenses was related to the decline of distribution costs as our overall sales decreased in 2018.

General and administrative expenses increased by $0.70 million, or 33.3%, to $2.79 million for the year of 2018 from $2.10 million for 2017. The increase in general and administrative expense was mainly attributable to increases in overall payroll and rental expenses.

Research and development expense increased by $0.01 million, or 1.0%, to $1.06 million for the year of 2018 from $1.05 million for 2017.

The Company also incurred impairment of goodwill charge of $1.60 million for the year of 2018, compared to $0 for 2017. The goodwill was a result of the acquisition of TDH Japan and TDH Group BVBA.

As a result, total operating expenses increased by $1.96 million, or 24.4%, to $9.99 million for the year of 2018 from $8.03 million for 2017. As a percentage of total revenues, total operating expenses was 42.2% for the year of 2018, compared to 27.7% for 2017.

Operating income (loss) and operating income (loss) margin

Loss from operations was $14.04 million for the year of 2018, compared to operating income of $0.27 million for 2017. The decrease in income from operations was the combined result of decrease in revenues and increases in cost of goods sold and operating expenses.

Net Income (loss) and earnings (loss) per share

Net loss was $14.22 million for the year of 2018, compared to net income of $0.12 million for 2017. After deducting for noncontrolling interest, net loss attributable to common stockholders was $14.22 million, or loss per share of $1.49, for the year of 2018. This is compared to net income attributable to common stockholders of $0.12 million, or earnings per share of $0.01, for 2017.

Financial Conditions

As of December 31, 2018, the Company had cash, cash equivalents and restricted cash of $2.70 million, compared to $3.64 million at December 31, 2017. Accounts receivable and inventories were $0.85 million and $3.02 million, respectively, as of December 31, 2018, compared to $1.93 million and $9.14 million, respectively, at the end of 2017. Total working capital deficit was $11.34 million as of December 31, 2018, as compared to working capital of $6.92 million at the end of 2017.

Net cash used in operating activities was $2.17 million for the year of 2018, compared to $2.67 million for 2017. Net cash used in investing activities was $6.59 million for the year of 2018, compared to $0.85 million for 2017. Net cash provided by financing activities was $7.73 million for the year of 2018, compared to $5.26 million for 2017.

Going Concern

The report of the Company's independent registered public accounting firm expresses substantial doubt about the Company's ability to continue as a going concern. The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, for the year ended December 31, 2018, the Company has incurred a net loss of approximately $14.2 million and working capital deficit of approximately $11.3 million and its cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses and meet the Company's obligations as they become due for the next twelve months after the date that our financial statements are issued. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plan to alleviate the substantial doubt about the Company's ability to continue as a going concern include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings to eliminate inefficiencies in order to meet its anticipated cash requirements. However, there can be no assurance that these plans and arrangements will be sufficient to fund the Company's ongoing capital expenditures, working capital, and other requirements. If the Company is unable to achieve these goals, its business plan implementation would be in jeopardy and the Company may have to substantially reduce or even cease its operations.

Notice

Rounding amounts and percentages: Certain amounts and percentages included in this press release have been rounded for ease of presentation. Percentage figures included in this press release have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, certain percentage amounts in this press release may vary from those obtained by performing the same calculations using the figures in the financial statements. In addition, certain other amounts that appear in this press release may not sum due to rounding.

About TDH Holdings, Inc.

Founded in April 2002, TDH Holdings, Inc. (the "Company") (NASDAQ: PETZ), is a developer, manufacturer and distributer of a variety of pet food products under multiple brands that are sold in the China, Asia and Europe. More information about the Company can be found at www.tiandihui.com.

Safe Harbor Statement

This news release contains forward-looking statements.  Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are only predictions, uncertainties and other factors may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Specifically, the Company's statements regarding, among others, its continued growth and business outlook, the Company's ability to execute on its business plan, secure necessary capital to sustain and maintain its operations, are forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and many of which are beyond the control of the Company.  Actual results may differ from those projected in the forward-looking statements due to risks and uncertainties that are described more fully in the Company's public reports filed with the U.S. Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized.  In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by TDH or any other person that their objectives or plans will be achieved. The Company does not undertake any obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

For more information, please contact:

Tony Tian, CFA         
Weitian Group LLC
Email: ttian@weitianco.com
Phone: +1-732-910-9692

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