EX-99.2 5 f20f2017ex99-2_tdhholdings.htm CHARTER OF THE COMPENSATION COMMITTEE

Exhibit 99.2

 

TDH Holdings Announces Fourth Quarter and Fiscal Year End 2017 Financial Results

 

TDH Holdings, Inc. Reports Fiscal Year 2017 Financial Results

 

QINGDAO, China, Apr. 30, 2018/ 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 under multiple established brands in China, Asia and Europe, today announced its audited financial results for the twelve months ended December 31, 2017.

 

Fiscal Year 2017 Financial Highlights:

 

   For the Twelve Months Ended December 31, 
($ millions, except per share data)  2017   2016   % Change 
Revenues  $28.98   $24.44    18.6%
Gross profit  $8.30   $7.08    17.3%
Gross margin   28.6%   28.9%   -0.3pp*
Operating income  $0.27   $1.15    -76.8%
Operating margin   0.9%   4.7%   -3.8pp*
Net income  $0.12   $1.01    -88.6%
EPS - basic and diluted  $0.01   $0.13    -89.1%

 

* pp: percentage points      

 

●Revenues increased by 18.6% to $28.98 million for 2017, with growth in sales across overseas, domestic and E-commerce.

●Gross profit increased by 17.3% to $8.30 million for 2017 from $7.08 million for 2016.

●Operating income was $0.27 million for 2017, compared to $1.15 million for 2016. The decrease in operating income was mainly due to the increase in selling, general and administrative expenses that more than offset the increase in gross profit. Selling expense increased due to the increase in e-commerce promotion expenses, e-commerce platform commission, shipping and handling expenses and payroll expenses for marketing personnel, all part of the Company’s strategy to expand E-commerce business in the past two years; and general and administrative expense increased primarily due to the increased professional fees related to the IPO and an increase in management compensation.

●Net income was $0.12 million, or $0.01 per basic and diluted share, for 2017, compared to $1.01 million, or $0.13 per basic and diluted share, for 2016.

 

Rongfeng Cui, Chairman and Chief Executive Officer of TDH, commented, “With revenues and gross profit increasing by 18.6% and 17.3%, respectively, our 2017 results highlighted steady growth momentum of our business. While the pet food industry in China remained highly fragmented and competitive in 2017, we benefited from a diversified portfolio of over 200 products and balanced sales and distribution channels that included both retail partners and wholesale distributor across overseas, domestic and E-commerce platforms. Innovation and new product launch also played a key role in our sales growth with new products introduced during the year accounted for 74% of sales in 2017.”

 

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Fiscal Year 2017 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. Revenue consists of the invoiced value for the sales, net of value-added tax (“VAT”), business tax, and applicable local government levies. For 2017, revenues increased by $4.54 million, or 18.6%, to $28.98 million from $24.44 million for 2016. The increase in revenues was across overseas, domestic and E-commerce sales. Our sales growth was mainly driven by the growth in sales volume as blended average selling prices for our products had been relatively stable for 2017 and 2016.

 

   For the Twelve Months Ended December 31, 
   2017   2016   Y/Y Change 
   Revenues
($’000)		   % of
Total		  

Revenues

($’000)

   % of
Total		  

Amount

($’000)

   % 
Overseas  $21,190    73.1%  $18,883    77.2%  $2,307    12.2%
Domestic   2,086    7.2%   1,129    4.6%   957    84.8%
E-commerce   5,734    19.8%   4,462    18.3%   1,273    28.5%
less: sales tax and addition   (31)   -0.1%   (29)   -0.1%   (2)   5.6%
Total  $28,980    100.0%  $24,444    100.0%  $4,536    18.6%

 

Overseas sales increased by $2.31 million, or 12.2%, to $21.19 million for 2017 from $18.88 million for 2016. Domestic sales increased by $0.96 million, or 84.8%, to $2.09 million for 2017 from $1.13 million for 2016. Sales from the e-commerce channel increased by $1.27 million, or 28.5%, to $5.73 million for 2017 from $4.46 million for 2016.

 

   For the Twelve Months Ended December 31, 
   2017   2016   Y/Y Change 
   Revenues
($’000)		   % of
Total		  

Revenues

($’000)

   % of
Total		  

Amount

($’000)

   % 
Pet chews  $9,614    33.2%  $10,317    42.2%  $(702)   -6.8%
Dried pet snacks   14,852    51.2%   11,205    45.8%   3,647    32.6%
Wet canned pet food   3,035    10.5%   1,926    7.9%   1,109    57.6%
Dental health snacks   857    3.0%   607    2.5%   250    41.2%
Baked pet biscuits   8    0.0%   124    0.5%   (116)   -93.4%
Others   644    2.2%   295    1.2%   349    118.4%
Less: sales tax and addition   (31)   -0.1%   (29)   -0.1%   (2)   5.6%
Total  $28,980    100.0%  $24,444    100.0%  $4,536    18.6%

 

Sales of dried pet snacks increased by $3.65 million, or 32.6%, to $14.85 million for 2017 from $11.20 million for 2016. Sales of wet canned pet food grew by $1.11 million, or 57.6%, to $3.04 million for 2017 from $1.93 million for 2016. Sales of pet chews, dried pet snacks, wet canned pet food, and dental health snacks accounted for 33.2%, 51.2%, 10.5%, and 3.0%, respectively, for 2017, compared to 42.2%, 45.8%, 7.9%, and 2.5%, respectively, for 2016.

 

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Cost of revenue

 

Cost of revenues consists primarily of raw materials, labor and factory overhead expenses necessary to manufacture finished goods. Cost of revenues increased by $3.31 million, or 19.1%, to $20.68 million for 2017 from $17.37 million for 2016. The increase in cost of revenues was roughly in line with the increase in revenues. As a percentage of revenues, cost of revenues was 71.4% for 2017, compared to 71.1% for 2016.

 

Gross profit and gross margin

 

Gross profit increased by $1.22 million, or 17.3%, to $8.30 million for 2017 from $7.08 million for 2016. Gross margin decreased by 0.3 percentage point to 28.6% for 2017 from 28.9% for 2016.

 

Operating expense

 

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

 

Selling expense increased by $1.44 million, or 41.9%, to $4.88 million for 2017 from $3.44 million for 2016. The increase in selling expense was mainly due to the increase in e-commerce promotion expenses, e-commerce platform commission, shipping and handling expenses and payroll expenses for marketing personnel, as it was the Company’s strategy to expand E-commerce business in the past two years.

 

General and administrative expense increased by $0.69 million, or 48.9%, to $2.10 million for 2017 from $1.41 million for 2016. The increase in general and administrative expense was mainly attributable to the increased professional fees related to the IPO and the increase in management compensation.

 

Research and development expense was $1.05 million for 2017, compared to $1.08 million for 2016.

 

As a result, total operating expenses increased by $2.11 million, or 35.5%, to $8.03 million for 2017 from $5.92 million for 2016.

 

Operating income and operating margin

 

Income from operations decreased by $0.88 million, or 76.8%, to $0.27 million for 2017 from $1.15 million for 2016. The decrease in income from operations was mainly driven by increase in selling, general and administrative expenses that more than offset the increase in gross profit. Operating margin was 0.9% for 2017, compared to 4.7% for 2016.

 

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Net Income and earnings per share

 

Net income was $0.12 million, or $0.01 per basic and diluted share, for 2017, compared to $1.01 million, or $0.13 per basic and diluted share, for 2016. The significant decrease in net income and earnings per share were resulted from the increase in selling, general and administrative expenses that more than offset the increase in gross profit.

 

Financial Condition

 

As of December 31, 2017, the Company had cash and cash equivalents of $2.35 million, compared to $1.15 million at December 31, 2016. Accounts receivable and inventories were $1.93 million and $9.14 million, respectively, as of December 31, 2017, compared to $0.87 million and $5.97 million, respectively, at the end of 2016. Total working capital was $6.92 million as of December 31, 2017, compared to $0.85 million at the end of 2016.

 

Net cash used in operating activities was $2.67 million for 2017, compared to $1.49 million for 2016. Net cash used in investing activities was $1.39 million for 2017, compared to net cash provided by investing activities of $0.94 million for 2016. Net cash provided by financing activities was $5.26 million for 2017, compared to $1.07 million for 2016.

 

Recent Developments

 

On September 21, 2017, the Company announced the pricing of its initial public offering (the “IPO”) of 1,325,000 common shares at a public offering price of $4.25 per share, for total gross proceeds of approximately $5.63 million. The shares began trading on the NASDAQ Capital Market on September 21, 2017 under the ticker symbol “PETZ.” On September 25, 2017, the Company announced the closing of the IPO.

 

On September 28, 2017, the Company announced that ViewTrade Securities, Inc., who acted as the managing underwriter and sole book-runner of the IPO, had exercised the full over-allotment option to purchase an additional 198,750 shares at the IPO price per share. As a result of the exercise of this over-allotment option, the Company had raised additional gross proceeds of approximately $0.84 million.

 

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.

 

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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. The Company has four production facilities and offers in excess of 200 products, including pet chews, dried pet snacks, dental health snacks, and baked pet biscuits, as well as non-food items like dog leashes, pet toys, etc. 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 its continued growth and business outlook, 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 registration statement on Form F-1 that was filed with the SEC. 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: tony.tian@weitian-ir.com

Phone: +1-732-910-9692

 

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TDH HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

   December 31,   December 31, 
   2017   2016 
         
ASSETS    
CURRENT ASSETS:        
Cash and cash equivalents  $2,346,109   $1,145,103 
Restricted cash, current   797,668    707,120 
Accounts receivable   1,932,924    865,491 
Advances to suppliers   633,554    711,751 
Inventories   9,135,332    5,973,124 
Due from related parties   361,961    35,842 
Prepayments and other current assets   371,796    383,932 
Total current assets   15,579,344    9,822,363 
NON-CURRENT ASSETS:          
Restricted cash, non-current   500,000    - 
Property, plant and equipment, net   3,520,373    3,306,735 
Land use rights, net   211,023    110,821 
Total non-current assets   4,231,396    3,417,556 
Total assets  $19,810,740   $13,239,919 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES:          
Accounts payable  $4,734,110   $3,262,375 
Account payable - related parties   152,298    111,139 
Notes payable   1,377,106    1,414,232 
Advances from customers   231,230    802,339 
Advances from customers - related party   7,520    - 
Short term loans   1,402,514    1,728,185 
Taxes payable   13,562    124,829 
Due to related parties   345,873    1,120,702 
Other current liabilities   392,435    409,571 
Total current liabilities   8,656,648    8,973,372 
NON-CURRENT LIABILITIES:          
Deferred tax liabilities   5,810    13,795 
Total liabilities   8,662,458    8,987,167 
STOCKHOLDERS’ EQUITY          
Common stock ($0.001 par value; 200,000,000 shares authorized; 9,423,750 and 7,900,000 shares issued and outstanding at December 31, 2017 and 2016)   9,424    7,900 
Additional paid-in capital   9,947,084    4,406,561 
Stock subscription receivable   (100,000)   (927,730)
Statutory reserves   160,014    140,570 
Retained earnings   823,474    727,807 
Accumulated other comprehensive income (loss)   308,286    (102,356)
Total stockholders’ equity   11,148,282    4,252,752 
Total liabilities and stockholders’ equity  $19,810,740   $13,239,919 

 

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TDH HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 

   For The Years Ended December 31, 
   2017   2016   2015 
             
Net revenues  $28,473,016   $24,443,736   $16,312,274 
Net revenues - related party   506,495    -    - 
Total revenues   28,979,511    24,443,736    16,312,274 
Cost of revenues   20,283,321    17,368,249    12,289,773 
Cost of revenues - related party   399,177    -    - 
Total cost of revenues   20,682,498    17,368,249    12,289,773 
Gross profit   8,297,013    7,075,487    4,022,501 
Operating expenses:               
Selling expense   4,882,367    3,439,843    1,820,700 
General and administrative expense   2,095,676    1,407,787    931,107 
Research and development expense   1,051,665    1,076,568    593,962 
Total operating expenses   8,029,708    5,924,198    3,345,769 
Income from operations   267,305    1,151,289    676,732 
Interest expense   (82,946)   (102,274)   (117,366)
Government subsidies   414    21,912    22,116 
Other income   19,305    51,535    156,908 
Other expense   (144,069)   (23,490)   (2,056)
Total other income (expenses)   (207,296)   (52,317)   59,602 
Income before income taxes provision   60,009    1,098,972    736,334 
Income tax provisions (benefit)   (55,102)   89,801    269,581 
Net income  $115,111   $1,009,171   $466,753 
Comprehensive income               
Net income  $115,111   $1,009,171   $466,753 
Other comprehensive income (loss)               
Foreign currency translation adjustment   410,642    (221,418)   (143,434)
Total comprehensive income  $525,753   $787,753   $323,319 
                
Earnings per common share               
Basic  $0.01   $0.13   $0.06 
Diluted  $0.01   $0.13   $0.06 
Weighted average common shares outstanding               
Basic   8,303,853    7,900,000    7,900,000 
Diluted   8,303,853    7,900,000    7,900,000 

 

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TDH HOLDINGS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

 

   For The Years Ended December 31, 
   2017   2016   2015 
Cash flows from operating activities            
Net income  $115,111   $1,009,171   $466,753 
Adjustments to reconcile net income to net cash used in operating activities:               
Depreciation and amortization expense   364,170    256,104    266,534 
Bad debt provision   18,201    -    - 
Deferred income tax liability   (8,581)   (127)   15,513 
Loss on disposal of property, plant and equipment   1,783    -    7,410 
Changes in operating assets and liabilities:               
Accounts receivable   (971,831)   (609,099)   336,193 
Accounts receivable - related party   (10,817)   -    - 
Inventories   (2,658,359)   (3,316,762)   (2,136,489)
Due to related parties   5,920           
Advances to suppliers   121,360    (610,215)   492,800 
Prepayments and other current assets   18,197    (223,632)   167,519 
Accounts payable   1,174,363    1,321,954    (482,510)
Accounts payable - related parties   32,440    -      
Notes payable   (127,275)   284,510    32,109 
Taxes payable   (115,219)   (85,139)   139,153 
Advances from customers   (601,855)   513,456    (92,736)
Advances from customers - related party   7,241    -      
Other current liabilities   (39,785)   (29,339)   87,013 
Net cash used in operating activities   (2,674,936)   (1,489,118)   (700,738)
Cash flows from investing activities               
Payments to acquire property, plant and equipment   (227,900)   (9,002)   (231,939)
Proceeds from disposal of property, plant and equipment   2,012    -    - 
Payments to acquire land use rights   (103,596)   -    - 
Loans to related parties   (533,242)   (2,543,946)   (5,941,665)
Repayments from related parties   15,443    3,400,799    5,790,092 
Change in restricted cash   (541,426)   96,337    73,851 
Net cash provided by (used in) investing activities   (1,388,709)   944,188    (309,661)
Cash flows from financing activities               
Proceeds from issuance of common shares   5,542,047    3,759,423    10 
Collection of stock subscription receivable   827,730    -    - 
Capital distribution in connection with acquisition of a subsidiary   -    (2,880,000)   - 
Proceeds from related parties   1,073,961    3,503,190    971,575 
Repayments to related parties   (1,767,391)   (3,310,849)   (56)
Proceeds from short term loans   2,077,219    1,806,411    3,243,000 
Repayments of short term loans   (2,494,793)   (1,806,411)   (2,713,203)
Net cash provided by financing activities   5,258,773    1,071,764    1,501,326 
Effect of exchange rate changes on cash and cash equivalents   5,878    (33,411)   (29,581)
Net change in cash and cash equivalents   1,201,006    493,423    461,346 
Cash and cash equivalents, beginning of the year   1,145,103    651,680    190,334 
Cash and cash equivalents, end of the year  $2,346,109   $1,145,103   $651,680 
                
Supplemental cash flow information               
Interest paid  $82,234   $102,274   $117,366 
Income taxes paid  $59,927   $102,036   $103,436 
                
Non-cash investing and financial activities               
Operating expenses paid by related parties  $85,837   $68,679   $84,842 
Property, plant and equipment transferred from construction in progress  $-   $34,721   $44,819 
Liabilities assumed in connection with purchase of property, plant and equipment  $133,229   $295,280   $46,786 
Liabilities assumed in connection with acquisition of a subsidiary  $-   $91,826   $- 
Accounts payable settled with loans to related parties  $-   $490,388   $- 
Receivables from related parties settled with payables to related parties  $169,906   $92,402   $- 
Debt paid by the related party in lieu of repayment to the Company  $-   $-   $125,225 

 

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