TDH Holdings, Inc. Reports Full Year 2019 Audited Financial Results

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Jun 15, 2020, 19:00 ET

QINGDAO, China, June 15, 2020 /PRNewswire/ -- TDH Holdings, Inc. (NASDAQ: PETZ) ("TDH" or the "Company"), a PRC-based company that specializes in the development, manufacturing and sales of pet food products in China and beyond, announced today its financial results for the twelve months ended December 31, 2019.

Full Year 2019 Financial Highlights:

	For the Twelve Months Ended December 31,
($ millions, except per share data)	2019	2018	% Change
Revenues	$12.65	$23.67	-46.6%
Gross profit (loss)	($1.52)	($4.05)	-62.4%
Gross profit (loss) margin	-12.0%	-17.1%	5.1 pp*
Operating income (loss)	($6.96)	($14.04)	-50.5%
Operating income (loss) margin	-55.0%	-59.3%	4.3 pp*
Net income (loss) attributable to common stockholders	($8.63)	($14.22)	-39.3%
Earnings (loss) per share - basic and diluted	($0.41)	($1.49)	-72.5%

* pp: percentage points

Revenues decreased by 46.6% from $23.67 million to $12.65 million for the year of 2019, with decrease in sales from overseas markets, domestic market and E-commerce platform. The decrease in total revenues in 2019 was mainly due to: (1) decrease in sales orders due to our uncompetitive sales price; (2) suspension of our overseas E-commerce business due to continuous losses; and (3) cessation of our manufacturing activities in late 2019 in view of rising raw material costs. As a result, we received reduced sales orders from our customers and our sales volume significantly decreased in 2019 as compared to 2018.
Gross loss was $1.52 million for the year of 2019 as compared to gross loss of $4.05 million for 2018. This loss in 2019 was mainly due to rising 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. The decrease in gross loss was a result of stop taking unprofitable orders, and the slightly improvement of our cost management.
Operating loss was $6.96 million for the year of 2019 as compared to operating loss of $14.04 million for 2018. The continuous deficit from operation was mainly due to the fact that our sales revenue continued to decrease, while the raw material cost increased continuously and significantly through the year. The decrease in loss from operations was the combined result of improvement in gross margin and decrease in operating expenses.
Net loss attributable to common stockholders was $8.63 million, or loss per share of $0.41, for the year of 2019 as compared to net loss of $14.22 million, or loss per share of $1.49, for 2018.

Full Year 2019 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 2019, total revenues decreased by $11.03 million, or 46.6%, to $12.65 million from $23.67 million in 2018. The decrease in total revenues in 2018 was mainly due to: (1) decrease in sales orders due to our uncompetitive sales price; (2) suspension of our overseas E-commerce business due to continuous losses; and (3) cessation of our manufacturing activities in late 2019 in view of rising raw material costs. As a result, we received reduced sales orders from our customers and our sales volume significantly decreased in 2019 as compared to 2018.

		For the Twelve Months Ended December 31,
		2019			2018			Y/Y Change
		Revenues ($'000)	% of Total		Revenues ($'000)	% of Total		Amount ($'000)	%
Overseas	$	9,995	79.0%	$	15,832	66.9%	$	(5,837)	-36.9%
Domestic		2,711	21.4%		4,102	17.3%		(1,391)	-33.9%
E-commerce		84	0.7%		3,801	16.1%		(3,717)	-97.8%
less: sales tax and additional surcharge		(142)	-1.1%		(61)	-0.3%		(81)	131.3%
Total	$	12,648	100.0%	$	23,674	100.0%	$	(11,026)	-46.6%

Overseas sales decreased by $5.84 million, or 36.9%, to $10.00 million for the year of 2019 from $15.83 million for 2018. Domestic sales decreased by $1.39 million, or 33.9%, to $2.71 million for the year of 2019 from $4.10 million for 2018. These decrease were due to the decrease in sales orders due to our uncompetitive sales price, and temporary suspension of our manufacturing activities in 2019. Sales from the e-commerce channel decreased by $3.72 million, or 97.8%, to $0.08 million for the year of 2019 from $3.80 million for 2018, due to suspension of our overseas E-commerce business as the losses continue to grow.

	For the Twelve Months Ended December 31,
		2019			2018			Y/Y Change
		Revenues ($'000)	% of Total		Revenues ($'000)	% of Total		Amount ($'000)	%
Pet chews	$	6,470	51.2%	$	6,272	26.5%	$	198	3.2%
Dried pet snacks		4,618	36.5%		13,611	57.5%		(8,993)	-66.1%
Wet canned pet food		1,310	10.4%		2,782	11.8%		(1,472)	-52.9%
Dental health snacks		305	2.4%		496	2.1%		(190)	-38.4%
Baked pet biscuits		87	0.7%		95	0.4%		8	-8.2%
Others		-	0%		480	2.0%		(480)	-100%
Less: sales tax and additional surcharge		(142)	-1.1%		(61)	-0.3%		(81)	131.1%
Total	$	12,648	100.0%	$	23,674	100.0%	$	(11,026)	-46.6%

Sales of pet chews increased by $0.20 million, or 3.2%, to $6.47 million for the year of 2019 from $6.27 million for 2018. Sales of dried pet snacks decreased by $8.99 million, or 66.1%, to $4.62 million for the year of 2019 from $13.61 million for 2018. Sales of wet canned pet food decreased by $1.47 million, or 52.9%, to $1.31 million for the year of 2019 from $2.78 million for 2018. Sales of dental health snacks decreased by $0.19 million, or 38.4%, to $0.31 million for the year of 2019 from $0.50 million for 2018. The foregoing decrease was mainly due to our rejecting certain unprofitable orders, suspension of our overseas E-commerce business and suspension of our manufacturing activities from late 2019. Sales of pet chews, dried pet snacks, wet canned pet food, and dental health snacks accounted for 51.2%, 36.5%, 10.4%, and 2.4%, respectively, for the year of 2019, compared to 26.5%, 57.5%, 11.8%, and 2.1%, respectively, for 2018.

Cost of revenues

Cost of revenues consists primarily of raw materials, labor and factory overhead. Cost of revenues decreased by $13.56 million, or 48.9%, to $14.17 million for the year of 2019 from $27.73 million for 2018. This decrease in cost of revenues was mainly due to the 46.57% decrease in our total net revenue for the year ended December 31, 2019. As a percentage of revenues, cost of revenues was 112.0% for the year of 2019, compared to 117.1% for 2018.

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

Gross loss was $1.52 million for the year of 2019, compared to gross profit of $4.05 million for 2018. Gross loss margin was 12.0% for the year of 2019, compared to gross loss margin of 17.1% for 2018.

Operating expense

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

Selling expenses decreased by $3.62 million, or 79.7%, to $0.92 million for the year of 2019 from $4.54 million for 2018. The decrease in our selling price was in line with our decreased revenue in 2019.

General and administrative expenses increased by $0.91 million, or 32.6%, to $3.70 million for the year of 2019 from $2.79 million for 2018. The increase was mainly resulted from the increase in bad debt expenses and an increase in severance compensation to the employees due to suspension of production at our plants since late October 2019.

Research and development expense decreased by $1.06 million, or 100%, to $Nil million for the year of 2019 from $1.06 million for 2018.

The Company also incurred impairment of long-lived assets other than goodwill charge of $0.81 million for the year of 2019, compared to $0 for 2018.

Due to our continuous operating loss in 2019, we reassessed our long-lived assets based on a forecast of the Company's future performance.

As a result, total operating expenses decreased by $4.56 million, or 45.6%, to $5.43 million for the year of 2019 from $9.99 million for 2018. As a percentage of total revenues, total operating expenses was 43.0% for the year of 2019, compared to 42.2% for 2018.

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

Loss from operations was $6.96 million for the year of 2019, compared to operating loss of $14.04 million for 2018. 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 $8.63 million for the year of 2019, compared to net loss of $14.22 million for 2018. After deducting for noncontrolling interest, net loss attributable to common stockholders was $8.63 million, or loss per share of $0.41, for the year of 2019. This is compared to net loss attributable to common stockholders of $14.22 million, or earnings per share of $1.49, for 2018.

Financial Conditions

As of December 31, 2019, the Company had cash, cash equivalents and restricted cash of $6.50 million, compared to $2.70 million at December 31, 2018. Accounts receivable and inventories were $0.02 million and $0.47 million, respectively, as of December 31, 2019, compared to $0.85 million and $3.02 million, respectively, at the end of 2018. Total working capital deficit was $7.27 million as of December 31, 2019, as compared to working capital deficit of $11.34 million at the end of 2018.

Net cash used in operating activities was $5.63 million for the year of 2019, compared to $2.17 million for 2018. Net cash provided by investing activities was $0.11 million for the year of 2019, compared to used in investing activities of $6.59 million for 2018. Net cash provided by financing activities was $9.52 million for the year of 2019, compared to $7.73 million for 2018.

Going Concern

As reflected in our consolidated financial statements, our revenue decreased by approximately $11 million from approximately $23.6 million in 2018 to approximately $12.6 million in 2019. Net cash used in operating activities amounted to approximately $5.6 million for the year ended December 31, 2019. As of December 31, 2019, we had working capital deficit of approximately $7.3 million as compared to working capital deficit of approximately $11.3 million as of December 31, 2018. In addition, in November 2019, we temporarily suspended our manufacturing activities due to rising raw material costs and continued losses in our operations. The suspension of our manufacturing activities led to reduced sales and operating cash flows, and consequently caused our inability to make the payments to settle vendor bills. In addition, some lenders were demanding loans to be paid off upon maturity. As a result, in late 2019, some of our vendors and several of the financial institutions initiated lawsuits against us for payment. To the extent such claims the Company prevail and the Company is unable to settle them on terms favorable to it, the Company's financial condition will be materially adversely affected in 2020. Furthermore, in December 2019, a novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly throughout China and worldwide, which has caused significant volatility in the PRC and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC and international economies. To reduce the spread of the COVID-19, the Chinese government has employed measures including city lockdowns, quarantines, travel restrictions, suspension of business activities and school closures. Due to difficulties resulting from the COVID-19 outbreak and all the other aspects of our operating challenges, including, but not limited to, the extending temporary closure of our facilities and operations to until the middle of May 2020, pending lawsuits for supplier arrears, bank loans and employee compensation, limited support from the Company's employees, delayed access to raw material supplies, reduced customer sales orders, and our inability to promote the sales to customers on a timely basis, our revenue for the year ended December 31, 2020 will be much lower than expected. These facts raised substantial doubt about our ability to continue as a going concern for the next 12 months from the date of this report.

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 growth and business outlook, the Company's ability to execute on its business plan, secure necessary capital to sustain and maintain its operations, its ability to resume its operations at the previous levels, its ability to successfully resolve various legal proceedings in which it is involved, 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.

TDH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2019		2018

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	5,114,175	$	893,020
Restricted cash, current		1,390,403		1,807,485
Accounts receivable		21,657		845,800
Accounts receivable - related party		-		435,513
Advances to suppliers		39,806		77,280
Inventories, net		473,216		3,019,804
Due from related parties		-		43,554
Prepayments and other current assets		153,633		680,606
Total current assets		7,192,890		7,803,062
NON-CURRENT ASSETS:
Property, plant and equipment, net		6,562,669		8,410,525
Land use rights, net		973,224		1,014,538
Long-term investments		71,757		201,281
Operating lease right-of-use assets - related parties		286,670		-
Total non-current assets		7,894,320		9,626,344
Total assets	$	15,087,210	$	17,429,406

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	3,436,939	$	6,220,375
Accounts payable - related parties		116,834		125,126
Notes payable		908,008		2,462,044
Advances from customers		116,155		160,828
Bank overdrafts		78,320		-
Short term loans		7,624,061		8,263,038
Short term loans - related parties		892,510		1,061,360
Current portion of long term loans - related party		-		68,673
Taxes payable		57,521		44,319
Due to related parties		39,387		45,146
Operating lease liabilities - related parties, current		137,347		-
Other current liabilities		1,054,818		692,669
Total current liabilities		14,461,900		19,143,578
NON-CURRENT LIABILITIES:
Deferred tax liabilities		1,036		4,929
Long term loans - related party, non-current		-		217,466
Operating lease liabilities - related party, non-current		286,875		-
Total liabilities		14,749,811		19,365,973
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock ($0.001 par value; 200,000,000 shares authorized; 45,849,995 and 10,516,662 shares issued and outstanding at December 31, 2019 and 2018, respectively)		45,850		10,517
Additional paid-in capital		21,963,678		10,999,011
Stock subscription receivable		-		-
Statutory reserves		160,014		160,014
Retained earnings (Accumulated deficit)		(21,974,651)		(13,349,232)
Accumulated other comprehensive income		142,516		243,470
Total TDH Holdings, Inc. stockholders' equity (deficit)		337,407		(1,936,220)
Noncontrolling interest		(8)		(347)
Total stockholders' equity (deficit)		337,399		(1,936,567)
Total liabilities and stockholders' equity (deficit)	$	15,087,210	$	17,429,406

TDH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	For The Years Ended December 31,
	2019		2018		2017

Net revenue	$	12,455,414	$	22,154,506	$	28,473,016
Net revenue - related parties		192,841		1,519,531		506,495
Total revenue		12,648,255		23,674,037		28,979,511
Cost of revenue		13,992,499		26,278,300		20,283,321
Cost of revenue - related parties		178,636		1,448,533		399,177
Total cost of revenue		14,171,135		27,726,833		20,682,498
Gross profit		(1,522,880)		(4,052,796)		8,297,013
Operating expenses:
Selling expense		920,237		4,535,945		4,882,367
General and administrative expense		3,702,035		2,792,858		2,095,676
Research and development expense		-		1,062,582		1,051,665
Impairment of long-lived assets other than goodwill		813,344		-		-
Impairment of goodwill		-		1,599,591		-
Total operating expenses		5,435,616		9,990,976		8,029,708
Income (loss) from operations		(6,958,496)		(14,043,772)		267,305
Interest expense		(1,378,755)		(233,101)		(82,946)
Government subsidies		129,255		81,882		414
Other income		1,189		20,242		19,305
Other expense		(290,655)		(26,992)		(144,069)
Loss from equity method investment		(127,965)		(17,524)		-
Total other expenses		(1,666,931)		(175,493)		(207,296)
Income (loss) before income taxes provision (benefit)		(8,625,427)		(14,219,265)		60,009
Income tax provision (benefit)		-		-		(55,102)
Net income (loss)		(8,625,427)		(14,219,265)		115,111
Less: Net loss attributable to noncontrolling interest		(8)		(40)		-
Net income (loss) attributable to TDH Holdings, Inc.	$	(8,625,419)	$	(14,219,225)	$	115,111
Comprehensive income (loss)
Net income (loss)	$	(8,625,427	$	(14,219,265)	$	115,111
Other comprehensive income (loss)
Foreign currency translation adjustment		(100,954)		(65,123)		410,642
Total comprehensive income (loss)	$	(8,726,381)	$	(14,284,388)	$	525,753
Less: Comprehensive loss attributable to noncontrolling interest		(8)		(347)		-
Comprehensive income (loss) attributable to TDH Holdings, Inc.	$	(8,726,373)	$	(14,284,041)	$	525,753

Earnings (loss) per common share attributable to TDH Holdings Inc.
Basic	$	(0.41)	$	(1.49)	$	0.01
Diluted	$	(0.41)	$	(1.49)	$	0.01
Weighted average common shares outstanding
Basic		21,022,598		9,558,493		8,303,853
Diluted		21,022,598		9,558,493		8,303,853

TDH HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

	For The Years Ended December 31,
	2019		2018		2017
Cash flows from operating activities
Net income (loss)	$	(8,625,427)	$	(14,219,265)	$	115,111
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization expense		571,528		395,355		364,170
Loss from equity method investment		127,965		17,524		-
Loss from disposal of subsidiaries		5,018		-		-
Impairment of goodwill		-		1,599,591		-
Impairment of long-lived assets other than goodwill		813,344		-		-
Inventory write-down		518,119		1,668,508		-
Bad debt provision		659,569		-		18,201
Deferred income tax liability		(3,861)		(591)		(8,581)
Loss on disposal of property, plant and equipment		308,003		-		1,783
Non-cash lease expense		89,176		-		-
Changes in operating assets and liabilities:
Accounts receivable, net		329,042		1,302,573		(971,831)
Accounts receivable - related party, net		306,301		(778,516)		(10,817)
Inventories, net		2,009,862		4,203,927		(2,658,359)
Operating lease liabilities - related parties		16,404		-		-
Due from related parties, net		(2,206)		-		-
Due to related parties		14,387		18,142		5,920
Advances to suppliers		36,322		569,723		121,360
Prepayments and other current assets		516,018		(291,336)		18,197
Accounts payable		(2,775,356)		1,870,157		1,174,363
Accounts payable - related parties		(6,703)		19,848		32,440
Interest payable		260,417		119,712		-
Notes payable		(1,046,257)		1,204,910		(127,275)
Taxes payable		13,797		32,733		(115,219)
Advances from customers		(42,923)		(60,254)		(601,855)
Advances from customer - related party		-		(7,397)		7,241
Other current liabilities		280,843		160,914		(39,785)
Net cash used in operating activities		(5,626,618)		(2,173,742)		(2,674,936)
Cash flows from investing activities
Payments to acquire property, plant and equipment		(121,560)		(5,627,422)		(227,900)
Proceeds from disposal of property, plant and equipment		233,747		-		2,012
Payments to acquire land use rights		-		(854,221)		(103,596)
Acquisition of businesses, net of cash acquired		-		19,888		-
Disposal of subsidiaries		83		-		-
Loans to related parties		-		(132,147)		(533,242)
Repayments from related parties		1,282		235,049		15,443
Payments for long-term investments		-		(235,605)		-
Net cash provided by (used in) investing activities		113,552		(6,594,458)		(847,283)
Cash flows from financing activities
Proceeds from issuance of common shares		6,760,000		-		5,542,047
Collection of stock subscription receivable		-		100,000		827,730
Proceeds from related parties		-		5,306		1,073,961
Repayments to related parties		(1,000)		(385,420)		(1,767,391)
Proceeds from bank overdrafts		78,162		-		-
Proceeds from short term loans		1,046,275		8,400,090		2,077,219
Repayments of short term loans		(2,073,177)		(1,508,056)		(2,494,793)
Proceeds from short term loans - related parties		4,791,403		1,176,690		-
Repayments of short term loans - related party		(1,080,947)		(60,490)		-
Net cash provided by financing activities		9,520,716		7,728,120		5,258,773
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(203,577)		96,808		55,000
Net change in cash, cash equivalents and restricted cash		3,804,073		(943,272)		1,791,554
Cash, cash equivalents and restricted cash, beginning of the year		2,700,505		3,643,777		1,852,223
Cash, cash equivalents and restricted cash, end of the year	$	6,504,578	$	2,700,505	$	3,643,777

Supplemental cash flow information
Interest paid	$	1,118,338	$	113,389	$	82,234
Income taxes paid	$	-	$	-	$	59,927

Non-cash investing and financial activities
Accrued interest added to short term loan – related party		126,697		-		-
Operating expenses paid by related parties	$	-	$	157,094	$	85,837
Liabilities assumed in connection with purchase of property, plant and equipment	$	51,196	$	38,636	$	133,229
Notes payable reclassified to short term loans		479,724		-		-
Receivables from related parties settled with payables to related parties	$	28,694	$	114,707	$	169,906
Receivables from common stock subscription settled with loan payables to a related party		4,240,000		-		-
Shares issuance in connection with acquisition of subsidiaries	$	-	$	1,053,020	$	-
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents	$	5,114,175	$	893,020	$	2,346,109
Restricted cash, current	$	1,390,403	$	1,807,485	$	797,668
Restricted cash, non-current	$	-	$	-	$	500,000
Total cash, cash equivalents, and restricted cash at end of year	$	6,504,578	$	2,700,505	$	3,643,777