20-F 1 f20f2020_tdhholdings.htm ANNUAL REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark one)

☐ 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, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHAN GE ACT OF 1934

for the transition period from ____________ to ____________

Commission file number 001-38206

TDH Holdings, Inc.

(Exact name of the Registrant as specified in its charter)

British Virgin Islands

(Jurisdiction of incorporation or organization)

c/o Qingdao Tiandihui Foodstuffs Co. Ltd.,

2521 Tiejueshan Road, Huangdao District, Qingdao, Shandong Province

People’s Republic of China

Tel: +86-532-8615-7918

(Address of principal executive offices)

Dandan Liu, Chief Executive Officer
c/o Qingdao Tiandihui Foodstuffs Co. Ltd.,

2521 Tiejueshan Road, Huangdao District, Qingdao, Shandong Province

People’s Republic of China

Tel: +86-532-8615-7918

(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 |  | Name of each exchange on which registered
SHARES, PAR VALUE $0.001 |  | The NASDAQ Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None.

On April 26, 2021, the issuer had 54,949,995 shares outstanding.

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 “accelerated filer and large accelerated filer” 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 “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

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 ☒

Table of Contents

|  |  | Page
PART I |  |  |
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |  | 1
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |  | 1
ITEM 3. | KEY INFORMATION |  | 1
ITEM 4. | INFORMATION ON THE COMPANY |  | 25
ITEM 4A. | UNRESOLVED STAFF COMMENTS |  | 39
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECT |  | 40
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |  | 66
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |  | 74
ITEM 8. | FINANCIAL INFORMATION |  | 78
ITEM 9. | THE OFFER AND LISTING |  | 80
ITEM 10. | ADDITIONAL INFORMATION |  | 82
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |  | 88
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |  | 88
PART II |  |  |
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |  | 89
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 89
ITEM 15. | CONTROLS AND PROCEDURES |  | 89
ITEM 16. | RESERVED |  | 90
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT. |  | 90
ITEM 16B. | CODE OF ETHICS. |  | 90
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |  | 90
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. |  | 90
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |  | 90
ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT. |  | 90
ITEM 16G. | CORPORATE GOVERNANCE |  | 90
PART III |  |  |
ITEM 17. | FINANCIAL STATEMENTS |  | 91
ITEM 18. | FINANCIAL STATEMENTS |  | 91
ITEM 19. | EXHIBITS |  | 91

i

CERTAIN INFORMATION

In this Annual Report on Form 20-F (the “Annual Report”), unless otherwise indicated, numerical figures included in this Annual Report have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

For the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English.

Except where the context otherwise requires and for purposes of this Annual Report only:

| ● | Depending on the context, the terms “we,” “us,” “our company,” and “our” refer to TDH Holdings, Inc., a British Virgin Islands company; TDH HK Limited, a Hong Kong company wholly-owned by TDH Holdings, Inc.; TDH Foods Limited, a Hong Kong company wholly-owned by TDH Holdings, Inc.; TDH Group BVBA, a Belgium company wholly-owned by TDH Holdings, Inc., and is currently under bankruptcy proceeding as of the date of this filing; TDH JAPAN, a Japanese company wholly-owned by TDH Holdings, Inc. and has been deregistered and dissolved as of the date of this filing; Qingdao Tiandihui Foodstuffs Co., Ltd., a Chinese limited liability company; Qingdao Tiandihui Pet Foodstuffs Co., Ltd., a Chinese limited liability company; Qingdao Tiandihui Foodstuffs Sales Co., Ltd., a Chinese limited liability company; TDH Petfood LLC, a Nevada limited liability company, and Beijing Chongai Jiujiu Cultural Communication Co., Ltd..

| ● | “shares” and “common shares” refer to our shares, $0.001 par value per share;

| ● | “China” and “PRC” refer to the People’s Republic of China, excluding, for the purposes of this Annual Report only, Macau, Taiwan and Hong Kong; and

| ● | all references to “RMB,” and “Renminbi” are to the legal currency of China, all references to “USD,” and “U.S. Dollars” are to the legal currency of the United States., all references to “Yen” and “¥” is to the legal currency of Japan, and all references to “Euro” and “€” are to the legal currency of Belgium.

ii

FORWARD-LOOKING STATEMENTS

This Report contains “forward-looking statements” that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as “may”, “will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”, “intends”, “plans”, “believes”, “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based on the success of our business.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings “Risk Factors”, “Operating and Financial Review and Prospects,” “Information on the Company” and elsewhere in this Annual Report.

This Annual Report should be read in conjunction with our audited financial statements and the accompanying notes thereto, which are included in Item 18 of this Annual Report.

iii

PART I

ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

ITEM 3. | KEY INFORMATION

| A. | Selected financial data

In the table below, we provide you with summary financial data of our company. The selected consolidated statement of operations data for the years ended December 31, 2017, 2018,2019 and2020 and the selected consolidated balance sheet data as of December 31, 2017, 2018, 2019 and 2020 are derived from our audited consolidated financial statements, which are included elsewhere in this Annual Report. 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 statements and notes included elsewhere in this Annual Report.

1

Selected Consolidated Financial Data

Selected Consolidated Statement of Operations Data

|  | For The Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
(In U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Total revenues |  | $ | 815,225 |  |  | $ | 12,648,255 |  |  | $ | 23,674,037 |  |  | $ | 28,979,511 |
Cost of revenues |  |  | 857,060 |  |  |  | 14,171,135 |  |  |  | 27,726,833 |  |  |  | 20,682,498 |
Gross profit (loss) |  |  | (41,835 | ) |  |  | (1,522,880 | ) |  |  | (4,052,796 | ) |  |  | 8,297,013 |
Total operating expenses |  |  | 1,884,102 |  |  |  | 5,435,616 |  |  |  | 9,990,976 |  |  |  | 8,029,708 |
Income (loss) from operations |  |  | (1,925,937 | ) |  |  | (6,958,496 | ) |  |  | (14,043,772 | ) |  |  | 267,305 |
Other income (expenses) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government subsidies |  |  | 8,651 |  |  |  | 129,255 |  |  |  | 81,882 |  |  |  | 414 |
Other income |  |  | 137,163 |  |  |  | 1,189 |  |  |  | 20,242 |  |  |  | 19,305 |
Other expenses |  |  | (35,197 | ) |  |  | (290,655 | ) |  |  | (26,992 | ) |  |  | (144,069 | )
Interest expenses |  |  | (1,180,489 | ) |  |  | (1,378,755 | ) |  |  | (233,101 | ) |  |  | (82,946 | )
Investment income |  |  | 2,120,241 |  |  |  | - |  |  |  | - |  |  |  | - |
Loss from equity method investments |  |  | - |  |  |  | (127,965 | ) |  |  | (17,524 | ) |  |  | - |
Total other income (expenses) |  |  | 1,050,369 |  |  |  | (1,666,931 | ) |  |  | (175,493 | ) |  |  | (207,296 | )
Income (loss) before income taxes provision |  |  | (875,568 | ) |  |  | (8,625,427 | ) |  |  | (14,219,265 | ) |  |  | 60,009 |
Income tax benefit |  |  | (900 | ) |  |  | - |  |  |  | - |  |  |  | (55,102 | )
Net income (loss) |  |  | (874,668 | ) |  |  | (8,625,427 | ) |  |  | (14,219,265 | ) |  |  | 115,111 |
Earnings (loss) per common share attributable to TDH Holdings, Inc. – basic and diluted |  | $ | (0.02 | ) |  | $ | (0.41 | ) |  | $ | (1.49 | ) |  | $ | 0.01 |

Selected Consolidated Balance Sheet Data

|  | As of December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2017 |
(In U.S. dollars) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 6,566,549 |  |  | $ | 5,114,175 |  |  | $ | 893,020 |  |  | $ | 2,346,109 |
Total current assets |  |  | 10,516,955 |  |  |  | 7,192,890 |  |  |  | 7,803,062 |  |  |  | 15,579,344 |
Total non-current assets |  |  | 7,935,955 |  |  |  | 7,894,320 |  |  |  | 9,626,344 |  |  |  | 4,231,396 |
Total assets |  |  | 18,452,910 |  |  |  | 15,087,210 |  |  |  | 17,429,406 |  |  |  | 19,810,740 |
Total current liabilities |  |  | 19,070,896 |  |  |  | 14,461,900 |  |  |  | 19,143,578 |  |  |  | 8,656,648 |
Total non-current liabilities |  |  | 274,794 |  |  |  | 287,911 |  |  |  | 222,395 |  |  |  | 5,810 |
Total liabilities |  |  | 19,345,690 |  |  |  | 14,749,811 |  |  |  | 19,365,973 |  |  |  | 8,662,458 |
Total equity (deficit) |  |  | (892,780 | ) |  |  | 337,399 |  |  |  | (1,936,567 | ) |  |  | 11,148,282 |
Total liabilities and shareholders’ equity (deficit) |  | $ | 18,452,910 |  |  | $ | 15,087,210 |  |  | $ | 17,429,406 |  |  | $ | 19,810,740 |

2

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On April 26, 2021, the buying rate announced by the Federal Reserve Statistical Release was RMB 6.4966 to $1.00.

|  | Spot Exchange Rate |
Period |  | Period Ended |  |  | Average (1) |  |  | Low |  |  | High |
|  | (RMB per US$1.00) |
2018 |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 6.2841 |  |  |  | 6.4233 |  |  |  | 6.2841 |  |  |  | 6.5263 |
February |  |  | 6.3280 |  |  |  | 6.3183 |  |  |  | 6.2649 |  |  |  | 6.3471 |
March |  |  | 6.2726 |  |  |  | 6.3174 |  |  |  | 6.2685 |  |  |  | 6.3565 |
April |  |  | 6.2945 |  |  |  | 6.2859 |  |  |  | 6.2722 |  |  |  | 6.3045 |
May |  |  | 6.4070 |  |  |  | 6.3694 |  |  |  | 6.3610 |  |  |  | 6.4193 |
June |  |  | 6.6191 |  |  |  | 6.4625 |  |  |  | 6.3889 |  |  |  | 6.6191 |
July |  |  | 6.8174 |  |  |  | 6.7137 |  |  |  | 6.6171 |  |  |  | 6.8174 |
August |  |  | 6.8317 |  |  |  | 6.8445 |  |  |  | 6.8110 |  |  |  | 6.9145 |
September |  |  | 6.8666 |  |  |  | 6.8529 |  |  |  | 6.8299 |  |  |  | 6.8801 |
October |  |  | 6.9695 |  |  |  | 6.9173 |  |  |  | 6.8679 |  |  |  | 6.9695 |
November |  |  | 6.9470 |  |  |  | 6.9359 |  |  |  | 6.8910 |  |  |  | 6.9555 |
December |  |  | 6.8764 |  |  |  | 6.8666 |  |  |  | 6.8407 |  |  |  | 6.9568 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 6.7006 |  |  |  | 6.7894 |  |  |  | 6.7006 |  |  |  | 6.8764 |
February |  |  | 6.6850 |  |  |  | 6.7381 |  |  |  | 6.6840 |  |  |  | 6.7765 |
March |  |  | 6.7111 |  |  |  | 6.7109 |  |  |  | 6.6886 |  |  |  | 6.7315 |
April |  |  | 6.7346 |  |  |  | 6.7147 |  |  |  | 6.6922 |  |  |  | 6.7370 |
May |  |  | 6.8992 |  |  |  | 6.8139 |  |  |  | 6.7238 |  |  |  | 6.9212 |
June |  |  | 6.8747 |  |  |  | 6.8870 |  |  |  | 6.8531 |  |  |  | 6.9210 |
July |  |  | 6.8841 |  |  |  | 6.8779 |  |  |  | 6.7845 |  |  |  | 6.9000 |
August |  |  | 7.0879 |  |  |  | 6.9909 |  |  |  | 6.8850 |  |  |  | 7.1748 |
September |  |  | 7.0729 |  |  |  | 7.0804 |  |  |  | 7.0720 |  |  |  | 7.1640 |
October |  |  | 7.0533 |  |  |  | 7.0631 |  |  |  | 7.0258 |  |  |  | 7.1668 |
November |  |  | 7.0298 |  |  |  | 7.0368 |  |  |  | 6.9602 |  |  |  | 7.0535 |
December |  |  | 6.9680 |  |  |  | 7.0030 |  |  |  | 6.8934 |  |  |  | 7.0470 |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 6.8876 |  |  |  | 6.9319 |  |  |  | 6.8870 |  |  |  | 6.9964 |
February |  |  | 7.0066 |  |  |  | 6.9471 |  |  |  | 6.9102 |  |  |  | 7.0074 |
March |  |  | 7.0851 |  |  |  | 7.0459 |  |  |  | 6.9211 |  |  |  | 7.1011 |
April |  |  | 7.0571 |  |  |  | 7.0671 |  |  |  | 6.9924 |  |  |  | 7.1187 |
May |  |  | 7.1316 |  |  |  | 7.0944 |  |  |  | 7.0270 |  |  |  | 7.1518 |
June |  |  | 7.0795 |  |  |  | 7.0835 |  |  |  | 7.0555 |  |  |  | 7.1315 |
July |  |  | 6.9840 |  |  |  | 7.0102 |  |  |  | 6.9718 |  |  |  | 7.0710 |
August |  |  | 6.8605 |  |  |  | 6.9362 |  |  |  | 6.8605 |  |  |  | 6.9980 |
September |  |  | 6.8101 |  |  |  | 6.8139 |  |  |  | 6.7591 |  |  |  | 6.8498 |
October |  |  | 6.7232 |  |  |  | 6.7403 |  |  |  | 6.6556 |  |  |  | 6.8101 |
November |  |  | 6.5782 |  |  |  | 6.6110 |  |  |  | 6.5484 |  |  |  | 6.7232 |
December |  |  | 6.5249 |  |  |  | 6.5415 |  |  |  | 6.5236 |  |  |  | 6.5921 |
2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 6.4709 |  |  |  | 6.4790 |  |  |  | 6.4604 |  |  |  | 6.5408 |
February |  |  | 6.4713 |  |  |  | 6.4567 |  |  |  | 6.4391 |  |  |  | 6.4736 |
March |  |  | 6.5191 |  |  |  | 6.4933 |  |  |  | 6.4565 |  |  |  | 6.5338 |

Source: Federal Reserve Statistical Release.

| (1) | Monthly averages, lows, and highs are calculated using the average of the daily rates during the relevant period.

3

| B. | Capitalization and Indebtedness

Not required.

| C. | Reasons for the Offer and Use of Proceeds

Not required.

| D. | Risk factors

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report.

Risk Related to Our Business

Legal claims by vendors could impair our ability to continue as a going concern.

Since November 2019, the Company has been a subject of 57 lawsuits by its raw material supplies, printing and packaging supplies, transportation companies and other vendors. The claims raised in these lawsuits pertain to the Company’s non-payment of various invoices for supplier and vendor services rendered, with related interest and costs. As of the date of this report, in 44 cases, the creditors have reached civil conciliation letters with our company, and in 9 cases, the court has issued civil judgments. With respect to the remaining 4 cases, the plaintiffs withdrew the lawsuit because of lack of evidence. The mediation and judgment involved total claims of RMB13.86 million (USD$2.12 million). Such liabilities have been accrued and reflected in the consolidated financial statements for the year ended December 31, 2020. On March 13, 2021, a land use right and a factory building on the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million). We plan to use $1.3 million in auction proceeds to partially settle the legal claims with some of the vendors and also seek other possible mediation plan to further settle the legal claims with vendors. As of the date of this filing, the settlement with vendors is still in progress and we anticipate to reach agreements with the vendors soon.

Various pending lawsuits, legal claims, proceedings and arbitrations could impair our ability to continue as a going concern.

As of December 31, 2020, we had the following pending lawsuits, legal claims, proceedings and arbitrations:

| ● | On December 2, 2019, Qingdao Lingang Real Estate Co., Ltd. (“QLRE”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The Company entered into a loan agreement with QLRE in 2018 and borrowed RMB20 million (USD3.18 million) from QLRE in connection with purchase of a factory. The loan was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. The Company failed to make repayment to QLRE. On March 4, 2020, the Court ordered that: (i) the Company repay QLRE the principal amount of RMB20 million plus interest of RMB 550,000 accrued as of October 31, 2019. The court ordered that the payment be made within 10 business days after the effective date of the court ruling , and also ordered that the Company pay interest at the rate of 2% per month for the period from the date of November 1, 2019 to the date of full discharge of the debt, as well as the litigation fee of RMB77,000 (USD$11,933). If the debt is not repaid within the required timeframe, interest shall be doubled from the effective date of court order until the date of full discharge of the debt. As of December 31, 2020 and as of the date of this filing, we have not made the loan repayment to QLRE. Although we anticipate settling the liabilities with QLRE during 2021, we cannot predict when or if the settlement will occur. If we fail to settle the obligations, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into a bankruptcy proceeding.

4

| ● | On January 15, 2020, China Construction Bank (“CCB”), initiated a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The plaintiff alleged that it executed a loan agreement with the Company in the amount of RMB19.93 million (USD3.08 million) for the purchase of manufacturing facility and the associated land use right located at Lingang Economic Development Zone, Huangdao District, Qingdao, Shandong Province, People’s Republic of China. Rongfeng Cui and his wife, Yanjuan Wang, co-signed for this loan as personal guarantors subject to joint and several liability in connection with the loan. The loan with CCB was guaranteed by Rongfeng Cui and Yanjuan Wang, and secured by a pledge by the aforementioned manufacturing facilities and associated land use right. On April 14, 2020, the Court has ordered among other things that the Company repay RMB19.93 million (USD3.25 million) of principal and accrued interest to CCB, and to sell the mortgaged property. On March 13, 2021, the land and factory buildings on the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million), of which, $3,192,827 (RMB21.14 million) has been used to repay loan principal and accrued interest to CCB. The repayment has been completed as of the date of this filing.

| ● | On November 11, 2019, Shanghai Pudong Development Bank Qingdao Branch(“SPDB”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB to borrow an aggregate of RMB4.85 million (USD0.75 million) from SPDB for working capital purpose. The Company failed to repay the debt upon maturity. The borrowing from SPDB was guaranteed by Rongfeng Cui and Yanjuan Wang, and secure by a pledge of land use right and real property of Saike and certaim real property owned by Rongfeng Cui and Yanjuan Wang. The Company failed to make repayment to SPDB on the maturity date. On October 24, 2020, the court has ordered the Company to repay SPDB the principal owed plus interest at the annual interest rate of 18.25%. The payment was required to be made within 10 business days after the effective date of the order. If the debt is not paid within the required timeframe, interest shall be doubled from the effective date of the court order until the date of full discharge of the debt. The Company is also required to pay litigation fees in the amount of RMB156,880 (USD 24,312). As of December 31, 2020 and as of the date of this filing, we have not made the repayment to SPDB. Although we anticipate settling with SPDB during 2021, we cannot predict when or if the settlement will occur. If we fail to settle the obligations, there is a potential risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into a bankruptcy proceeding.

| ● | On December 10, 2019, Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), initiated a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB for bank acceptance draft and Gaochuang executed the guarantee of SPDB bank acceptance deposit on behalf of the Company in the amount of RMB1.2 million (USD0.19 million). The Company failed to repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang upon the bank acceptance draft maturity date. The deposit made by Gaochuang was guaranteed by certain of the Company’s fixed assets and patents. On December 29, 2020, the court ordered the Company to repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang and the interest at the annual interest rate of 4.15%. The payment was required to be made within 10 business days after the effective date of the court order. The court order also provides that if the debt is not paid within the required timeframe, interest shall be doubled from the effective date of court order until the date of full discharge of the debt. The court order also obligate the Company to bear litigation fees of RMB83,127(USD 12,882). As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Gaochuang. Although we anticipate settling the liabilities with Gaochuang during 2021, at this point, we cannot when or if a settlement will occur. If we fail to settle the obligations, there is a risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

5

| ● | On May 6, 2020, the Postal Savings Bank of China Limited Weihai Road Sub-branch of Qingdao North District (hereinafter referred to as Postal Savings) filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui and Yanjuan Wang. The Company entered into two loan agreements with Postal Savings in 2018 and 2019, respectively, and borrowed RMB9.9 million ($1.53 million) in aggregate. The loans were guaranteed by Rongfeng Cui and Yanjuan Wang, and were secured by a pledge of real property owned by the Company and real property owned by Rongfeng Cui. The Company failed to pay its debt to Postal Savings when it was due. In June 2020, the court ordered the Company to repay to Postal Savings the principal and interest under the loan, and to reimburse Postal Savings for the litigation fees incurred by Postal Savings. If the court decide to auction the pledged real properties, Postal Savings shall have the priority right of the repayment from the auction proceeds. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Postal Savings. Although we anticipate settling the liabilities with Postal Savings during 2021, we cannot predict when or if a settlementwill occur. If we fail to settle obligations, there is a substantial risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

Labor arbitration claims by former employees could impair our ability to continue as a going concern.

The Company dismissed certain employees in 2019 and 2020 and only intends to maintain 54 full-time employees. As a result of the employee layoffs, certain of the Company’s former employees commenced arbitration proceedings against the Company under applicable labor rules and standards, claiming, among others, lost wages, severance payments and/or social security obligations totaling RMB3.68 million (USD0.56 million). As of the reporting date, there were 98 labor arbitrations, of which 6 cases has been settled and the trial court has issued decisions on the remaining 92 cases. The Company accrued approximately $0.4 million contingent liabilities in other current liabilities on the consolidated balance sheet as of December 31, 2019 and recognized contingent losses of approximately $0.4 million for the year ended December 31, 2019. Following the issuance of rulings in these cases, the Company further accrued approximately $0.1 million wage and/or severance payables in other current liabilities on the consolidated balance sheet as of December 31, 2020 and recognized losses of approximately $0.1 million for the year ended December 31, 2020. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were actioned by the court for $5,098,461 (RMB 33.14 million), we plan to use $0.56 million auction proceeds to settle the labor arbitration cases with our former employees. There can be no assurance that our efforts will be successful. Failure to successfully settle the claims could impair our ability to continue as a going concern.

We are experiencing a serious working capital deficit and may not be able to continue as a going concern unless it raises a substantial amount of debt and/or equity capital.

To date, we have funded our operations primarily through the initial public offering proceeds received in 2017, proceeds from private placements, borrowings from related parties, and our lines of credit obtained from various financial institutions. We anticipate incurring additional operating losses and may not be able to regain profitability in the foreseeable near future. We are experiencing a serious working capital deficit. Our working capital deficit as of December 31, 2020 was approximately $8.55 million and our cash balance and revenues generated are not currently sufficient and cannot be projected to cover our operating expenses and meet our obligations as they become due. In the absence of an infusion of substantial additional capital, our ability to continue to operate will be impaired, and we may not be able to continue as a going concern. Additionally, even if we raise sufficient capital through equity or debt financing, strategic alliances or otherwise, there can be no assurances that future revenue or capital infusion will be sufficient to enable us to develop our business to a level where it will be profitable or to generate positive cash flows.

6

We have incurred recurring losses and anticipate continuing to incur losses in the future.

Due to the sharp rise in market price of raw materials, the lack of operational efficiency of our production facilities and our inability to make bank loan repayment to financial institutions upon maturity, we have temporarily suspended our production and normal business operations and we were involved in certain legal proceedings since November 2019. The COVID-19 outbreak and spread further disrupted our business activities during the period from the beginning of 2020 up to May 2020 when we resumed our business operations. As a result, our net losses were $8,625,427 in 2019 and $ 874,668 in 2020. As of December 31, 2020, we had an accumulated deficit of approximately $22.85 million. Although we resumed our business operations since May 2020 and we are currently trying to implement our business strategies in order to manage the future growth of our business, we cannot assure our current efforts may achieve the anticipated results and we may continue to incur operating losses in the near term. We cannot guarantee that going forward we will operate profitably. In order to achieve profitability, among other factors, management must successfully execute our growth and operations in the markets on which we are focused. If we are unable to successfully take necessary steps, we may be unable to sustain or increase our profitability in the future.

The report of our independent registered public accounting firm expresses substantial doubt about the Company’s ability to continue as a going concern.

Our consolidated financial statements have been prepared assuming we 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, 2020, we have incurred a net loss of approximately $0.87 million and cash used in operating activities amounted to approximately $2.63 million. As of December 31, 2020, we had a working capital deficit of approximately $8.55 million and our cash balance and revenues generated are not currently sufficient and cannot be projected to cover our operating expenses and meet our 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 we are unable to achieve these goals, our business would be jeopardized and the Company may not be able to continue. If we ceased operations, it is likely that all of our investors would lose their investment.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. As of the end of the most recently completed fiscal year ended December 31, 2020, our SOX certifying officers concluded that, as of December 31, 2020, our disclosure controls and procedures were not effective due to the presence of material weakness in internal control over financial reporting (Refer to Item 15 of this Annual Report). We intend to carry out a number of measures to address and remediate the material weakness in our internal controls. This work is ongoing and we intend to complete it on or before December 31, 2021. If we cannot provide financial reports or prevent fraud, our business reputation and operating results could be harmed. Inferior internal controls also could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

7

The continued uncertainties associated with the global spread of the COVID-19 (coronavirus) may further adversely impact the Company’s business operations.

Beginning in late 2019, there were reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, cessation of certain travel and business closures. Following this outbreak, in February 2020, the Company temporarily shut down its main office and its remaining production facilities. Following the previously reported temporary cessation of its production capabilities and the negative impact of the COVID-19 pandemic, the Company expects to continue to incur significant delays, reductions in revenue and increases in expenses. The Company’s revenues remain negligible following the gradual resumption of its operations in mid May 2020. Moreover, the Company expects that the impact of the COVID-19 outbreak on the domestic and global economic environment will continue to have a material adverse effect on the demand for its products and its ability to generate revenue in the near terms. Nevertheless, due to the uncertainty on future developments, which cannot be predicted with confidence at this time, we are not able to assess the overall or long-term effect the COVID-19 outbreak may have on our financial results and business operations. Any and all of the foregoing could have a material adverse impact on its business, operating results and financial condition. Further, there can be no assurance that we would be able to secure commercial financing in the future in the event that we require additional capital.

The Company is party to various legal proceedings by its vendors and lenders, which proceedings distract our management, are expensive to conduct and could result in significant damage award against the Company.

During the period from November 2019 to April 2021, the Company has been named as a defendant in 57 lawsuits by its raw material supplies, printing and packaging supplies, transportation companies and other vendors. The claims raised in these lawsuits pertain to the Company’s non-payment of various invoices for supplier and vendor services rendered, with interest and costs. As of the date of this Annual Report, the creditors of 44 cases have reached civil conciliation letters with the Company, and the court has issued civil judgments in 9 cases, another 4 claimants withdrew their cases for various reasons including lack of evidence. The mediation and judgment costs are estimated approximately RMB13.86 million (USD$2.12 million). In addition, several lending institutions have instituted legal proceedings to recover loans made to the Company. Finally, there are several labor arbitration claims against the Company brought by its former employees following the layoffs, claiming, among others, lost wages, severance payments and/or social security obligations totaling RMB3.68 million (USD$0.56 million), which has been accrued in other current liabilities on the consolidated balance sheets as of December 31, 2020. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB 33.14 million), among which, approximately $3.2 million has been used to repay the defaulted loan to China Construction Bank, and the Company plans to use $560,000 (RMB3,707,546) to settle the liabilities associated with most of these labor arbitrations. These proceedings distract our management, are expensive to conduct and could result in significant damage award against the Company.

The turnaround of our business depends on our ability to accurately predict consumer trends and demand and successfully introduce new products and product line extensions and improve existing products.

Due to the sharp rise in market price of raw materials, the lack of operational efficiency of our production facilities and our inability to make bank loan repayment upon maturity, we have suspended our production and normal business operations and we were involved in certain legal proceedings since November 2019. The COVID-19 outbreak and spread further disrupted our business activities from the beginning of 2020 up to May 2020 when we resumed our business operations. These factors led to significant decrease in our revenue by 93.6% or $11.8 million in 2020 as compared to 2019, and we suffered recurring net loss of approximately $0.87 million in 2020. We are currently facing the challenges to recover our production and normal business operations.

8

Our turnaround depends, in part, on our ability to successfully introduce new products and product line extensions and improve and reposition our existing products to meet the requirements of pet owners and the dietary needs of their pets. This, in turn, depends on our ability to predict and respond to evolving consumer trends, demands and preferences. The development and introduction of innovative new products and product line extensions involve considerable costs. In addition, it may be difficult to establish new supplier relationships and determine appropriate product selection when developing a new product or product line extension. Any new product or product line extension may not generate sufficient customer interest and sales to become a profitable product or to cover the costs of its development and promotion and may reduce our operating income. In addition, any such unsuccessful effort may adversely affect our brand. If we are not able to anticipate, identify or develop and market products that respond to changes in requirements and preferences of pet parents and their pets or if our new product introductions or repositioned products fail to gain consumer acceptance, we may not grow our business as anticipated, our sales may decline and our business, financial condition and results of operations may be materially adversely affected.

We may not be able to successfully implement our turning loss into profits strategy on a timely basis or at all.

Our future success depends, in large part, on our ability to implement our turning loss into profits strategy, including expanding distribution and improving placement of our products in the stores of our retail partners, attracting new consumers to our brands, introducing new products and product line extensions and expanding into new markets. Our ability to implement this strategy depends, among other things, on our ability to:

| ● | accurately anticipate customer needs, and innovate and develop new products or product enhancements that meet customer needs;

| ● | price our products competitively and differentiate our product offerings from those of our competitors;

| ● | enter into distribution and other strategic arrangements with retailers and other potential distributors of our products;

| ● | continue to effectively compete in our distribution channels;

| ● | increase our brand recognition by effectively implementing our marketing strategy and advertising initiatives;

| ● | expand and maintain brand loyalty;

| ● | maintain and, to the extent necessary, improve our high standards for product quality, safety and integrity;

| ● | maintain sources for the required supply of quality raw ingredients to meet our growing demand; and

| ● | identify and successfully enter and market our products in new geographic markets and market segments.

These initiatives require significant capital expenditures and investment of valuable management and financial resources. There are no guarantees that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. We may not be able to successfully implement our turning loss into profits strategy and may need to change our strategy. If we fail to implement our turning loss into profits strategy or if we invest resources in a turning loss into profits strategy that ultimately proves unsuccessful, our business, financial condition and results of operations may be materially adversely affected.

9

Any damage to our reputation or our brand may materially adversely affect our business, financial condition and results of operations.

Maintaining our strong reputation with consumers, our retail partners and our suppliers is critical to our success. Our brands may suffer if our marketing plans or product initiatives are not successful. The importance of our brands may increase if competitors offer more products with formulations similar to ours. Further, our brands may be negatively impacted due to real or perceived quality issues or if consumers perceive us as being untruthful in our marketing and advertising, even if such perceptions are not accurate. Product contamination, the failure to maintain high standards for product quality, safety and integrity, including raw materials and ingredients obtained from suppliers, or allegations of product quality issues, mislabeling or contamination, even if untrue or caused by our third-party contract manufacturers or raw material suppliers, may reduce demand for our products or cause production and delivery disruptions. We maintain guidelines and procedures to ensure the quality, safety and integrity of our products. However, we may be unable to detect or prevent product and/or ingredient quality issues, mislabeling or contamination, particularly in instances of fraud or attempts to cover up or obscure deviations from our guidelines and procedures. If any of our products become unfit for consumption, cause injury or are mislabeled, we may have to engage in a product recall and/or be subject to liability. Damage to our reputation or our brands or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and our business, financial condition and results of operations may be materially adversely affected.

Our business is dependent on trends that may change or not continue, and our historical growth may not be indicative of our future results.

The growth of the global pet food industry and the market in China, in particular, depends primarily on the continuance of current trends in humanization of pets and premiumization of pet foods as well as on general economic conditions, the size of the pet population and average dog size. These trends may not continue or may change. In the event of a decline in the overall number or average size of pets, a change in the humanization, premiumization or health and wellness trends or during challenging economic times, we may be unable to persuade our customers and consumers to purchase our branded products instead of lower-priced products, and our business, financial condition and results of operations may be materially adversely affected.

There may be decreased spending on pets globally in a challenging economic climate.

Our business, financial condition and results of operations may be materially adversely affected by a challenging economic climate, including adverse changes in interest rates, volatile commodity markets and inflation, contraction in the availability of credit in the market and reductions in consumer spending. In addition, a slow-down in the general economy and/or PRC economy or a shift in consumer preferences for economic reasons or otherwise to less expensive products may result in reduced demand for our products which may affect our profitability. The keeping of pets and the purchase of pet-related products may constitute discretionary spending for some of our consumers and any material decline in the amount of consumer discretionary spending may reduce overall levels of pet ownership or spending on pets. As a result, a challenging economic climate may cause a decline in demand for our products which could be disproportionate as compared to competing pet food brands since our products command a price premium. In addition, we cannot predict how current or worsening economic conditions in the PRC and globally will affect our partners, suppliers and distributors. If economic conditions result in decreased spending on pets and have a negative impact on our retail partners, suppliers or distributors, our business, financial condition and results of operations may be materially adversely affected.

Our business depends, in part, on the sufficiency and effectiveness of our marketing and trade promotion programs.

Due to the competitive nature of our industry, we must effectively and efficiently promote and market our products through advertisements as well as trade promotions and incentives to sustain our competitive position in our market. Marketing investments may be costly. In addition, we may, from time to time, change our marketing strategies and spending, including the timing or nature of our trade promotions and incentives. We may also change our marketing strategies and spending in response to actions by our competitors and other pet food companies. The sufficiency and effectiveness of our marketing and trade promotions and incentives are important to our ability to retain and/or improve our market share and margins. If our marketing and trade promotions and incentives are not successful or if we fail to implement sufficient and effective marketing and trade promotions and incentives or adequately respond to changes in our competitors’ marketing strategies, our business, financial condition and results of operations may be adversely affected.

10

We depend on our key personnel, and our business and growth prospects may be severely disrupted if we lose their services.

Our future success depends heavily upon the continued service of our key executives. We rely on their business, industry, financial and capital markets knowledge and experience. If our CEO or CFO became unable or unwilling to continue in their present positions, we may not be able to replace them easily, our business may be significantly disrupted and our financial condition and results of operations may be materially adversely affected.

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 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. In addition, we compete for qualified personnel with other companies, and we face competition in attracting skilled personnel and retaining the members of our senior management team. These personnel possess technical and business capabilities which are difficult to replace. There is intense competition for experienced senior management with technical and industry expertise in our industry, and we may not be able to retain our key personnel. 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.

If we are unable to maintain or increase prices, we may fail to generate a positive margin.

We rely in part on price increases to offset cost increases and improve the profitability of our business. Our ability to maintain prices or effectively implement price increases may be affected by a number of factors, including raw material market price fluctuation, competition, effectiveness of our marketing programs, the continuing strength of our brands, market demand and general economic conditions, including inflationary pressures. In particular, in response to increased promotional activity by other pet food companies, we may have to increase our promotional spending, which may resulted in a lower average price per pound for our products and adversely impacted our gross margins. During challenging economic times, consumers may be less willing or able to pay a price premium for our branded products and may shift purchases to lower-priced or other value offerings, making it more difficult for us to maintain prices and/or effectively implement price increases. In addition, our retail partners and distributors may pressure us to rescind price increases that we have announced or already implemented, whether through a change in list price or increased promotional activity. If we are unable to maintain or increase prices for our products or must increase promotional activity, our margins may be adversely affected. Furthermore, price increases generally result in volume losses, as consumers purchase fewer units. If such losses are greater than expected or if we lose distribution due to a price increase, our business, financial condition and results of operations may be materially adversely affected.

If our products are alleged to cause injury or illness or fail to comply with PRC or other applicable governmental regulations, we may need to recall our products and may experience product liability claims.

Our products may be exposed to product recalls, including voluntary recalls or withdrawals, if they are alleged to pose a risk of injury or illness, or if they are alleged to have been mislabeled, misbranded or adulterated or to otherwise be in violation of governmental regulations. We may also voluntarily recall or withdraw products in order to protect our brand or reputation if we determine that they do not meet our standards, whether for palatability, appearance or otherwise. If there is any future product recall or withdrawal, it could result in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation and lost sales due to the unavailability of the product for a period of time, and our business, financial condition and results of operations may be materially adversely affected. We also may be subject to claims if the consumption or use of our products is alleged to cause injury or illness. If there is a judgment against us or a settlement agreement related to a claim, our business, financial condition and results of operations may be materially adversely affected.

11

We are dependent on a limited number of retailer customers for a significant portion of our sales.

We sell our products to retail partners and distributors in specialty channels. Our ten largest retail partners, accounted for 56% of our net sales for the year ended December 31, 2017, 54% in 2018, 44% in 2019, and 40% in 2020. Since our suspension of our production in November 2019 to deal with various vendor claims, legal proceedings and labor arbitrations as discussed above, with additional challenges brought in by the global spread of COVID-19 in 2020, our customer base has been reduced in 2020. If we were to continue to lose any of our key customers, if any of our retail partners continue to reduce the amount of their orders or if any of our key customers consolidate, reduce their store footprint and/or gain greater market power, or if we fail to attract a sufficient number of customers in a cost-effective manner, our business, financial condition and results of operations may be materially adversely affected. In addition, we may be similarly adversely impacted if any of our key customers experience any operational difficulties or generate less traffic.

We rely upon a limited number of contract manufacturers to provide a significant portion of our supply of products.

There is limited available manufacturing capacity that meets our quality standards. We have agreements with a network of contract manufacturers that require them to provide us with specific finished products. Most of our agreements with our contract manufacturers are up to three years. During the years ended December 31, 2018, and 2019, approximately 58% and 60% of our cost of sales, respectively, was derived from products purchased from contract manufacturers. In 2020, our business operations were largely disrupted by the COVID-19 outbreak and spread as well as by our struggling to deal with pending claims, lawsuits, legal proceedings and labor arbitrations, which led to our reduced business activities and limited fulfillment of customer orders. As a result of significant decrease in our revenue, 0% of our cost of sales was derived from products purchased from contract manufacturers in 2020. The manufacture of our products may not be easily transferable to other sites in the event that any of our contract manufacturers experience breakdown, failure or substandard performance of equipment, disruption of supply or shortages of raw materials and other supplies, labor problems, power outages, adverse weather conditions and natural disasters or the need to comply with environmental and other directives of governmental agencies. From time to time, a contract manufacturer may experience financial difficulties or other business disruptions, which could disrupt our supply of finished goods or require that we incur additional expense by providing financial accommodations to the contract manufacturer or taking other steps to seek to minimize or avoid supply disruption, such as establishing a new contract manufacturing arrangement with another provider. The loss of any of these contract manufacturers or the failure for any reason of any of these contract manufacturers to fulfill their obligations under their agreements with us, including a failure to meet our quality controls and standards, may result in disruptions to our supply of finished goods. We may be unable to locate an additional or alternate contract manufacturing arrangement that meets our quality controls and standards in a timely manner or on commercially reasonable terms, if at all.

To the extent our retailer customers purchase products in excess of consumer consumption in any period, our sales in a subsequent period may be adversely affected as our customers seek to reduce their inventory levels.

From time to time, our retailer customers may purchase more product than they expect to sell to consumers during a particular time period. Our retailer customers may grow their inventory in anticipation of, or during, our promotional events, which typically provide for reduced prices during a specified time or other customer or consumer incentives. Our retailer customers may also grow inventory in anticipation of a price increase for our products, or otherwise over-order our products as a result of overestimating demand for our products. If a retailer customer increases its inventory during a particular reporting period as a result of a promotional event, anticipated price increase or otherwise, then sales during the subsequent reporting period may be adversely impacted as our customers seek to reduce their inventory to customary levels. This effect may be particularly pronounced when the promotional event, price increase or other event occurs near the end or beginning of a reporting period or when there are changes in the timing of a promotional event, price increase or similar event, as compared to the prior year. To the extent our retailer customers seek to reduce their usual or customary inventory levels or change their practices regarding purchases in excess of consumer consumption, our net sales and results of operations may be materially adversely affected in that period.

12

We operate in a highly competitive industry and may lose market share or experience margin erosion if we are unable to compete effectively.

We compete on the basis of product quality and palatability, brand awareness and loyalty, product variety and ingredients, interesting product names, product packaging and package design, reputation, price and promotional efforts. We compete with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies who may have greater financial resources and larger customer bases than we have. As a result, these competitors may be able to identify and adapt to changes in consumer preferences more quickly than us due to their resources and scale. They may also be more successful in marketing and selling their products, better able to increase prices to reflect cost pressures and better able to increase their promotional activity, which may impact us and the entire pet food industry. If these competitive pressures cause our products to lose market share or experience margin erosion, our business, financial conditions and results of operations may be materially adversely affected.

We may face issues with respect to raw materials and other supplies, including increased costs, disruptions of supply, shortages, contaminations, adulterations or mislabeling.

The Company’s key raw material ingredients include meat and fish. We and our contract manufacturers use various raw materials and other supplies in our business, including ingredients, packaging materials and fuel. The prices of our raw materials and other supplies are subject to fluctuations attributable to, among other things, changes in supply and demand of crops or other commodities, weather conditions, agricultural uncertainty or governmental incentives and controls. We generally do not have long-term supply contracts with our ingredient suppliers. The length of the contracts is fixed for a period of time, typically up to a year or for a season and/or a crop year. In addition, some of our raw materials are sourced from a limited number of suppliers. We may not be able to renew or enter into new contracts with our existing suppliers following the expiration of such contracts on commercially reasonable terms, or at all. If commodity prices increase, we may not be able to increase our prices to offset these increased costs. Moreover, our competitors may be better able than we are to implement productivity initiatives or effect price increases or to otherwise pass along cost increases to their customers. Some of the raw materials we use are vulnerable to adverse weather conditions and natural disasters, such as floods, droughts, frosts, earthquakes and pestilences and may be impacted by climate change and other factors. Adverse weather conditions and natural disasters can reduce crop size and crop quality, which in turn could reduce supplies of raw materials, increase the prices of raw materials, increase costs of storing raw materials and interrupt or delay our production schedules if harvests are delayed. Our competitors may not be impacted by such weather conditions and natural disasters depending on the location of their suppliers and operations. If any of our raw materials or supplies are alleged or proven to include contaminants affecting the safety or quality of our products, we may need to find alternate materials or supplies, delay production of our products, discard or otherwise dispose of our products, or engage in a product recall, all of which may have a materially adverse effect on our business, financial condition and results of operations. We may be unable to detect or prevent the use of ingredients which do not meet our quality standards if our ingredient suppliers engage in fraud or attempt to cover up or obscure deviations from our guidelines and procedures. Any such conduct by any of our suppliers may result in a loss of consumer confidence in our brand and products and a reduction in our sales if consumers perceive us as being untruthful in our marketing and advertising and may materially adversely affect our brand, reputation, business, financial condition and results of operations. If our sources of raw materials and supplies are terminated or affected by adverse prices, weather conditions or quality concerns, we may not be able to identify alternate sources of raw materials or other supplies that meet our quality controls and standards to sustain our sales volumes or on commercially reasonable terms, or at all.

We may not be able to manage our manufacturing and supply chain effectively which may adversely affect our results of operations.

We must accurately forecast demand for our products in order to ensure we have adequate available manufacturing capacity. Our forecasts are based on multiple assumptions which may cause our estimates to be inaccurate and affect our ability to obtain adequate manufacturing capacity (whether our own manufacturing capacity or contract manufacturing capacity) in order to meet the demand for our products, which could prevent us from meeting increased customer or consumer demand and harm our brand and our business. However, if we overestimate our demand and overbuild our capacity, we may have significantly underutilized assets and may experience reduced margins. If we do not accurately align our manufacturing capabilities with demand, our business, financial condition and results of operations may be materially adversely affected. In addition, we must continuously monitor our inventory and product mix against forecasted demand. If we underestimate demand, we risk having inadequate supplies. We also face the risk of having too much inventory on hand that may reach its expiration date and become unsaleable, and we may be forced to rely on markdowns or promotional sales to dispose of excess or slow-moving inventory. If we are unable to manage our supply chain effectively, our operating costs could increase and our profit margins could decrease.

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Our market size estimate may prove to be inaccurate.

Data for the PRC and global pet food retail sales is collected for most, but not all channels, and as a result, it is difficult to estimate the size of the market and predict the rate at which the market for our products will grow, if at all. While our market size estimate was made in good faith and is based on assumptions and estimates we believe to be reasonable, this estimate may not be accurate.

Relocating some of our production facilities may adversely affect our results of operations.

The Company’s Canning Facility and Pude Facility are located in the old city of Huangdao District, Qingdao. The Company has learned that the local governmental authorities proposed plans to redevelop certain portions of the old city to allow for more residential dwellings in the area. In March 2018, we terminated the lease of the Canning facility in light of the implementation of this plan. The relocation of Canning facility had adverse material effect on the Company’s operations by, among other things, causing a decrease in our production capacity from 18 tons per day to 4.6 tons per day since March 2018. If and to the extent we may be required to relocate the Pude Facility in the future, our results of operations may also be adversely affected.

We may face difficulties as we expand into countries in which we have no prior operating experience.

We intend to continue to expand our domestic and global footprint by entering into new markets. As we expand our business in China and into new countries we may encounter foreign economic, political, regulatory, personnel, technological, language barriers and other risks that increase our expenses or delay our ability to become profitable in such countries. These risks include:

| ● | fluctuations in currency exchange rates;

| ● | the difficulty of enforcing agreements and collecting receivables through some foreign legal systems;

| ● | customers in some foreign countries potentially having longer payment cycles;

| ● | changes in local tax laws, tax rates in some countries that may exceed those of the United States or Canada and lower earnings due to withholding requirements or the imposition of tariffs, exchange controls or other restrictions;

| ● | seasonal reductions in business activity;

| ● | the credit risk of local customers and distributors;

| ● | general economic and political conditions;

| ● | unexpected changes in legal, regulatory or tax requirements;

| ● | differences in language, culture and trends in foreign countries with respect to pets and pet care;

| ● | the risk that certain governments may adopt regulations or take other actions that would have a direct or indirect adverse impact on our business and market opportunities, including nationalization of private enterprise; and

| ● | non-compliance with applicable currency exchange control regulations, transfer pricing regulations or other similar regulations.

In addition, our expansion into new countries may require significant resources and the efforts and attention of our management and other personnel, which will divert resources from our existing business operations. We may seek to grow our business through acquisitions of or investments in new or complementary businesses, facilities, technologies or products, or through strategic alliances, and the failure to manage acquisitions, investments or strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on us. From time to time we may consider opportunities to acquire or make investments in new or complementary businesses, facilities, technologies or products, or enter into strategic alliances, that may enhance our capabilities, expand our manufacturing network, complement our current products or expand the breadth of our markets.

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Potential and completed acquisitions and investments and other strategic alliances involve numerous risks, including:

| ● | problems assimilating the purchased business, facilities, technologies or products;

| ● | issues maintaining uniform standards, procedures, controls and policies;

| ● | unanticipated costs associated with acquisitions, investments or strategic alliances;

| ● | diversion of management’s attention from our existing business;

| ● | adverse effects on existing business relationships with suppliers, contract manufacturers, retail partners and distribution customers;

| ● | risks associated with entering new markets in which we have limited or no experience;

| ● | potential loss of key employees of acquired businesses; and

| ● | increased legal and accounting compliance costs.

We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms or at all or whether we will be able to successfully integrate any acquired business, facilities, technologies or products into our business or retain any key personnel, suppliers or customers. Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, facilities, technologies and products and to obtain any necessary financing. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations. If we are unable to integrate any acquired businesses, facilities, technologies and products effectively, our business, results of operations and financial condition could be materially adversely affected.

Our online activities are dependent on our ability to access the Internet and operate online in a fast, secure and reliable manner.

We utilize online sale and multi-brand, multi-store brand sale strategies which use Tmall.com, JD.com and 1688 as our marketing platforms. Although we suspended our overseas e-commerce business since 2019, we are still preparing to expand our domestic e-commerce business in the near future. Our PRC marketing group has established a comprehensive network of various brand shops. Our online activities are dependent on our ability to operate online in a fast, secure and reliable manner which may be adversely affected as a result of PRC governmental regulations of e-commerce and other services, electronic devices, and competition and restrictive governmental actions. In addition, we may face risks relating to the governmental laws and regulations regarding consumer and data protection, privacy, network security, payments, and restrictions on pricing or discounts, as well as lower levels of consumer access, use of and spending on the Internet. Occurrence of any of the foregoing events (or a combination thereof) could have a material adverse effect on our ability to conduct online business, our financial condition and results of operations.

Failure to protect our intellectual property could harm our competitive position or require us to incur significant expenses to enforce our rights.

Our trademarks are valuable assets that support our brand and consumers’ perception of our products. We rely on trademark, copyright, trade secret, patent and other intellectual property laws, as well as nondisclosure and confidentiality agreements and other methods, to protect our trademarks, trade names, proprietary information, technologies and processes. Our non-disclosure agreements and confidentiality agreements may not effectively prevent disclosure of our proprietary information, technologies and processes and may not provide an adequate remedy in the event of unauthorized disclosure of such information, which could harm our competitive position. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited for some of our trademarks and patents in some foreign countries. We may need to engage in litigation or similar activities to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others. Any such litigation could require us to expend significant resources and divert the efforts and attention of our management and other personnel from our business operations. If we fail to protect our intellectual property, our business, financial condition and results of operations may be materially adversely affected.

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We may be subject to intellectual property infringement claims or other allegations, which could result in substantial damages and diversion of management’s efforts and attention.

While we believe that our products do not infringe in any material respect upon proprietary rights of other parties and/or that meritorious defenses would exist with respect to any assertions to the contrary, we may from time to time be found to infringe on the proprietary rights of others. If patents later issue on these applications, we may be found liable for subsequent infringement. Any claims that our products or processes infringe these rights, regardless of their merit or resolution, could be costly and may divert the efforts and attention of our management and technical personnel. We may not prevail in such proceedings given the complex technical issues and inherent uncertainties in intellectual property litigation. If such proceedings result in an adverse outcome, we could, among other things, be required to:

| ● | pay substantial damages;

| ● | cease the manufacture, use or sale of the infringing products;

| ● | discontinue the use of the infringing processes;

| ● | expend significant resources to develop non-infringing processes; and

| ● | enter into licensing arrangements from the third party claiming infringement, which may not be available on commercially reasonable terms, or may not be available at all.

If any of the foregoing occurs, our ability to compete could be affected or our business, financial condition and results of operations may be materially adversely affected.

Our success depends on our ability to attract and retain key employees and the succession of senior management.

Due to decreased business scale since late 2019 which was further affected by COVID-19, the Company dismissed certain employee and currently only maintains 54 full-time employees as of the date of this filing. However, in order to recover our business operations and achieve our turnaround goal, we may need effectively recruit, train and motivate a large number of new employees. Our continued growth and success require us to hire, retain and develop our leadership bench. If we are unable to attract and retain talented, highly qualified senior management and other key executives, as well as provide for the succession of senior management, our growth and results of operations may be adversely impacted.

We are dependent on the state of the PRC’s economy and a general economic downturn, a recession or a sudden disruption in business conditions in the PRC would have a material adverse effect on our business, financial condition and results of operations.

Significant slowdowns in the PRC economy may cause our customers to reduce expenditures on our products. This may in turn lead to a decline in the demand for the services we provide. Any such decline would have a material adverse effect on our business, financial condition and results of operations. Consumer spending is generally affected by a number of factors, including general economic conditions, the level of unemployment, inflation, interest rates, energy costs, gasoline prices and consumer confidence generally, all of which are beyond our control. Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our services. In addition, sudden disruption in business conditions as a result of a terrorist attack, retaliation and the threat of further attacks or retaliation, war, adverse weather conditions and climate changes or other natural disasters, pandemic situations or large scale power outages can have a short or, sometimes, long-term impact on consumer spending. A downturn in the economy in the PRC, including any recession or a sudden disruption of business conditions in the PRC, could adversely affect our business, financial condition or results of operation.

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Since our operations and assets are located in the PRC, shareholders may find it difficult to enforce a U.S. judgment against the assets of our company, our directors and executive officers.

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.

We hold certain of our cash balances in RMB in uninsured bank accounts in China.

We maintain certain our 2020 cash and deposit balances in bank accounts at financial institutions in China which accounts which are not insured. While we have not experienced any losses in uninsured bank deposits and do not believe that we are exposed to significant risks on cash held in bank accounts, if and to the extent we do experience such losses in the future, our access to financial liquidity and working capital could be adversely affected.

We may be subject to PRC regulatory limitations on merger and acquisition (M&A) activities.

Foreign enterprises that engage in M&A activities inside and outside China are subject to different regulatory limitations under Chinese laws and regulations. The key regulations governing such activities within PRC are Wholly Foreign-Owned Enterprise Law, the Interim Provisions on the Domestic Investment of Foreign-Funded Enterprise, the Catalogue for the Guidance of Foreign Investment Industries (amended in 2017) and other relevant Chinese laws and regulations. Under these laws and regulations, conducting M&A in China requires that our WFOE be profitable, and a timely application with and approval by of local regulatory agencies of any proposed M&A transaction. The M&A activities outside the PRC are governed by several rules and regulations, including PRC Administrative Measures on Offshore Investment, the Regulation on Foreign Exchange Administration of the PRC, the Notice of the State Administration of Foreign Exchange on Issuing the Provisions on the Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Resident’s Financing and Round-trip Investment Through Offshore Special Purpose Vehicles. Under these laws and regulations, our WFOE must get approval from the PRC Ministry of Commerce or its branch offices for any proposed offshore M&A transaction, and complete its foreign exchange registration. We cannot offer any assurance that in the event we seek such approvals or registrations we will be able to secure them in a timely fashion or will be able to receive them at all; negative feedback from the regulatory agencies or our failure to register such proposed transactions may have material adverse impact on our business expansion and could materially affect our business operation and finance condition. In addition, since approval and/or registration procedures required time to complete, these processes may cause additional delays to our onshore or offshore M&A projects, which, in turn, may have adverse impact on our business and operations.

Fluctuation of the Renminbi may indirectly affect our financial condition by affecting the volume of cross-border money flow.

The value of the RMB fluctuates and is subject to changes in the PRC’s political and economic conditions. We do not currently engage in hedging activities to protect against foreign currency risks. Even if we choose to engage in such hedging activities, we may not be able to do so effectively. Future movements in the exchange rate of the RMB could adversely affect our financial condition as we may suffer financial losses when transferring money raised outside of China into the country or paying vendors for services performed outside of China. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an appreciation of the Renminbi against the U.S. dollar. While the international reaction to the Renminbi revaluation has generally been positive, there remains international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more rapid appreciation of the Renminbi against the U.S. dollar. Any material revaluation of Renminbi may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our common shares in U.S. dollars. For example, an appreciation of Renminbi against the U.S. dollar would make any new Renminbi denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into Renminbi for such purposes.

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If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

If you are a United States holder, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

Based on the nature of our business activities, we may be classified as a passive foreign investment company (“PFIC”), by the U.S. Internal Revenue Service (“IRS”), for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, a U.S. investor will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for U.S. tax purposes if either:

| ● | 75% or more of our gross income in a taxable year is passive income; or

| ● | the average percentage of our assets by value in a taxable year that produce or are held for the production of passive income (which includes cash) is at least 50%.

The calculation of the value of our assets is based, in part, on the then market value of our common shares, which is subject to change. We cannot assure that we will not be a PFIC for any taxable year.

Introduction of new laws or changes to existing laws by the PRC government may adversely affect our business.

The PRC legal system is a codified legal system made up of written laws, regulations, circulars, administrative directives and internal guidelines. Unlike common law jurisdictions such as the U.S., decided cases (which may be taken as reference) do not form part of the legal structure of the PRC and thus have no binding effect. Furthermore, in line with its transformation from a centrally planned economy to a more market-oriented economy, the PRC government is still in the process of developing a comprehensive set of laws and regulations. As the legal system in the PRC is still evolving, laws and regulations or their interpretation may be subject to further changes. Such uncertainty and prospective changes to the PRC legal system could adversely affect our results of operations and financial condition.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC, which may take as long as six months in the ordinary course. We receive the majority of our revenues in Renminbi. Under our current corporate structure, our income is derived from payments from WFOE. The October 8, 2016 Provisional Measures for Filling Administration of Establishment and Changes of Foreign-Investment Enterprise (the “Establishment and Changes Provision”) promulgated by the PRC Ministry of Commerce and was amended on July 30, 2017, regulates the recordation procedures with respect to the establishment and changes of a foreign-invested enterprise which do not fall within the scope of special administration measures for foreign investment admission as stipulated by the state; for those entities that do fall within the regulatory reach of special administration measures must go through approval procedures according to relevant laws and regulations governing foreign investment. We do not believe that such measures will have any impact on our income derived from payment from our WFOE because:

| ● | As a pet food producer and seller, we do not fall within the scope of special access administrative measures for foreign investment admission as stipulated by the state, and therefore are not required to go through approval procedures.

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| ● | The Establishment and Changes Provision regulates the recordation procedures relating to the establishment and changes of a foreign-invested enterprise, which including but not limited to: (i) the changes of company name, registered address, duration of operation, business scope, registered capital, total investment, shareholders, merger, division and termination of the enterprise; and (ii) the corporate name change, domicile or place of incorporation, subscribed capital, investment period. Based on the foregoing and our current corporate structure, our income is derived from payment from our WFOE, but the Establishment and Changes Provisions do not regulate our origin of income or dividend policy, and therefore will not have any impact on our dividend distribution.

Shortages in the availability of foreign currency may restrict the ability of WFOE 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 the PRC SAFE by complying with certain procedural requirements. However, approval from appropriate PRC government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank 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 shareholders.

PRC’s labor law restricts our ability to reduce our workforce in the PRC in the event of an economic downturn and may increase our production costs.

In June 2007, the National People’s Congress of the PRC enacted new labor law legislation called the Labor Contract Law, which became effective on January 1, 2008 and was amended on December 28, 2012, to clarify certain details in connection with the implementation of the Labor Contract Law, the PRC State Council promulgated the Implementing Rules for the Labor Contract Law on September 18, 2008, which came into effect immediately (collectively as “new laws”). The legislation formalized workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions. Considered one of the strictest labor laws in the world, among other things, these new laws provide for specific standards and procedures for the termination of an employment contract and places the burden of proof on the employer. In addition, the new laws require the payment of a statutory severance pay upon the termination of an employment contract in most cases, including the case of the expiration of a fixed-term employment contract. Further, the new laws require an employer to conclude an “employment contract without a fixed-term” with any employee who either has worked for the same employer for 10 consecutive years or more or has had two consecutive fixed-term contracts with the same employer. An “employment contract without a fixed term” can no longer be terminated on the ground of the expiration of the contract, although it can still be terminated pursuant to the standards and procedures set forth under the new laws. Because of the lack of precedent for the enforcement of such a law, the standards and procedures set forth under the new laws in relation to the termination of an employment contract have raised concerns among foreign investment enterprises in the PRC that such an “employment contract without a fixed term” might in fact become a “lifetime, permanent employment contract.” Finally, under the new laws, downsizing of either more than 20 people or more than 10% of the workforce may occur only under specified circumstances, such as a restructuring undertaken pursuant to the PRC’s Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations, or where there has been a material change in the objective economic circumstances relied upon by the parties at the time of the conclusion of the employment contract, thereby making the performance of such employment contract not possible. To date, there has been very little guidance or precedent as to how such specified circumstances for downsizing will be interpreted and enforced by the relevant PRC authorities. All of our employees working for us exclusively within the PRC are covered by the new laws and thus, our ability to adjust the size of our operations when necessary in periods of recession or less severe economic downturns may be curtailed. Accordingly, if we face future periods of decline in business activity generally or adverse economic periods specific to our business, these new laws can be expected to exacerbate the adverse effect of the economic environment on our results of operations and financial condition.

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Changes in PRC’s political and economic policies could harm our business.

Our results of operations, financial condition and prospects are subject to economic, political and legal developments in the PRC. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, and control of foreign exchange and allocation of resources. The PRC economy has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the PRC government have had a positive effect on the economic development of PRC, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the PRC economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development (“OECD”). These differences include, without limitation:

| ● | economic structure;

| ● | level of government involvement in the economy;

| ● | level of development;

| ● | level of capital reinvestment;

| ● | control of foreign exchange;

| ● | methods of allocating resources; and

| ● | balance of payments position.

As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the PRC economy were similar to those of the OECD member countries. Since 1979, the Chinese government has promulgated many new laws and regulations covering general economic matters. Despite these efforts to develop a legal system, the PRC’s system of laws is not yet complete. Even where adequate law exists in the PRC, enforcement of existing laws or contracts based on existing law may be uncertain or sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of the PRC’s judiciary, in many cases, creates additional uncertainty as to the outcome of any lawsuit. In addition, interpretation of statutes and regulations may be subject to government policies reflecting domestic political changes. Our activities in the PRC will also be subject to administration review and approval by various national and local agencies of the PRC’s government. Because of the changes occurring in the PRC’s legal and regulatory structure, we may not be able to secure the requisite governmental approval for our activities. Although we have obtained all required governmental approvals to operate our business as currently conducted, to the extent we are unable to obtain or maintain required governmental approvals, the PRC government may, in its sole discretion, prohibit us from conducting our business.

If relations between the United States and China worsen, our share price may decrease and we may have difficulty accessing U.S. capital markets.

At various times during recent years, the United States and China have had disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversy between the United States and China could adversely affect the market price of our common shares and our ability to access U.S. capital markets.

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The Chinese government could change its policies toward private enterprise or even nationalize or expropriate private enterprises, which could result in the total loss of our investment in that country.

Our business is subject to political and economic uncertainties and may be adversely affected by political, economic and social developments in the PRC. Over the past several years, the PRC government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The PRC government may not continue to pursue these policies or may alter them to our detriment from time to time with little, if any, prior notice. Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to shareholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in the PRC and in the total loss of any investment in us.

Because our operations are located in the PRC, information about our operations is not readily available from independent third-party sources.

Our shareholders may have greater difficulty in obtaining information about them on a timely basis than would shareholders of a U.S.-based company. Their operations will continue to be conducted in the PRC and shareholders may have difficulty in obtaining information about them from sources other than the companies themselves. Information available from newspapers, trade journals, or local, regional or national regulatory agencies such as issuance of construction permits and contract awards for development projects will not be readily available to shareholders and, where available, will likely be available only in Chinese. Shareholders will be dependent upon management for reports of their progress, development, activities and expenditure of proceeds.

If our financial condition deteriorates as a NASDAQ listed company, we may not meet continued listing standards on the NASDAQ Capital Market.

On October 29, 2019, the Company received Nasdaq confirmation of the Company’s regaining technical compliance with the minimum stockholders’ equity rule and with other applicable requirements as set forth in the Panel’s decision following an oral hearing in August 2019. In connection with this confirmation, the Nasdaq Panel imposes a Panel Monitor under Listing Rule 5815(d)(4)(A) until October 30, 2020 for the purposes of monitoring the Company’s continued compliance with the stockholders’ equity requirement. The decision provided that if and to the extent the Company’s stockholders’ equity fell below $2.5 million and the Company did not qualify for listing under an alternative to the stockholders’ equity rule, the Panel (or a newly convened Panel if the initial Panel is unavailable) would promptly conduct a hearing with respect to this deficiency, and the Company’s securities could be delisted from Nasdaq. During the monitoring period, the Company was obligated to notify the Panel, in writing, in the event its stockholders’ equity fell below $2.5 million for any reason, or if the Company otherwise fell out of compliance with any other applicable listing requirement. In the event that the Company failed to comply with any other requirement for continued listing during the monitoring period, the Company would have been provided written notice of the deficiency and an opportunity to present a definitive plan to regain compliance to the Panel. The Panel would thereafter render a determination with respect to the Company’s continued listing on Nasdaq. On November 12, 2020, the Company, was informed that, following a 12-month compliance monitoring period under a Panel Monitor pursuant to a Compliance with Monitor letter dated October 29, 2019, the Company was currently in compliance with applicable Nasdaq Listing Rules, and the Panel has determined to continue the listing of the Company’s securities on The Nasdaq Stock Market. There is no assurance that the Company will remain in compliance with the continued listing criteria. If it fails to remain in compliance its securities could be delisted. If the Company is delisted from Nasdaq, its common shares may be traded over-the-counter on the OTC Bulletin Board or in the “pink sheets” if one or more market makers seeks and obtains approval by the Financial Industry Regulatory Authority to continue quoting in the Company’s common shares.

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However, if our shares are listed on the NASDAQ Capital Market but are delisted from the NASDAQ Capital Market at some later date, our shareholders could find it difficult to sell our shares. In addition, if our common shares are delisted from the NASDAQ Capital Market at some later date, we may apply to have our common shares quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ Capital Market. In addition, if our common shares are not so listed or are delisted at some later date, our common shares may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common shares might decline. If our common shares are delisted from the NASDAQ Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find it difficult to sell their shares.

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 will be 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 will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be 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.

As a relatively new public company, we incur increased costs and are subject to additional regulations and requirements, and our management is required to devote substantial time to new compliance matters, which could lower our profits or make it more difficult to run our business.

As a relatively newly public company, we incur significant legal, accounting and other expenses that we have not incurred as a private company, including costs associated with public company reporting requirements and costs of recruiting and retaining non-executive directors. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act and related rules implemented by the Securities and Exchange Commission, or the SEC, and NASDAQ. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costlier, although we are currently unable to estimate these costs with any degree of certainty. Our management will need to devote a substantial amount of time to ensure that we comply with all of these requirements. These laws and regulations also could make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common shares, fines, sanctions and other regulatory action and potentially civil litigation.

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The market price of shares may be volatile, which could cause the value of your investment to decline.

Worldwide market volatility, as well as general economic, market or political conditions, could reduce the market price of shares of our stock in spite of our operating performance. In addition, our results of operations could be below the expectations of public market analysts and investors due to a number of potential factors, including variations in our quarterly results of operations, additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of research reports about our industry, litigation and government investigations, changes or proposed changes in laws or regulations or differing interpretations or enforcement thereof affecting our business, adverse market reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of similar companies or speculation in the press or investment community, announcements by our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse publicity about our industry in or individual scandals, and in response the market price of our common shares could decrease significantly. In the past few years, stock markets have experienced extreme price and volume fluctuations. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, or at all.

As the rights of shareholders under British Virgin Islands law differ from those under U.S. law, you may have fewer protections as a shareholder.

Our corporate affairs will be governed by our memorandum and articles of association, the BVI Business Companies Act, 2004 (as amended), referred to below as the “BVI Act”, and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are governed by the BVI Act and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from the common law of England and the wider Commonwealth, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are largely codified in the BVI Act, but are potentially not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law. As a result of all of the above, holders of our shares may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of a U.S. company.

British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.

Shareholders of British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States Shareholders of a British Virgin Islands company could, however, bring a derivative action in the British Virgin Islands courts, and there is a clear statutory right to commence such derivative claims under Section 184C of the BVI Act. 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.

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The laws of the British Virgin Islands may provide less protection for minority shareholders than those under U.S. law, so minority shareholders may have less recourse than they would under U.S. law if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of the British Virgin Islands, the rights of minority shareholders are protected by provisions of the BVI Act dealing with shareholder remedies and other remedies available under common law (in tort or contractual remedies). The principal protection under statutory law is that shareholders may bring an action to enforce the constitutional documents of the company (i.e. the memorandum and articles of association) as shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association of the company. A shareholder may also bring an action under statute if he feels that the affairs of the company have been or will be carried out in a manner that is unfairly prejudicial or discriminating or oppressive to him. The BVI Act also provides for certain other protections for minority shareholders, including in respect of investigation of the company and inspection of the company books and records. There are also common law rights for the protection of shareholders that may be invoked, largely dependent on English common law, since the common law of the British Virgin Islands for business companies is limited.

We may not be able to pay any dividends on our shares in the future due to British Virgin Islands law.

Under British Virgin Islands law, we may only pay dividends to our shareholders if the value of our assets exceeds our liabilities and we are able to pay our debts as they become due. We cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be at the discretion of our board of directors, and will depend upon our results of operations, cash flows, financial condition, payment to us of cash dividends by our subsidiaries, capital needs, future prospects and other factors that our directors may deem appropriate.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our shares less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the PCAOB requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved. We currently intend to take advantage of the reduced disclosure requirements regarding executive compensation. If we remain an “emerging growth company” after fiscal 2017, we may take advantage of other exemptions, including the exemptions from the advisory vote requirements and executive compensation disclosures under the Dodd-Frank Wall Street Reform and Customer Protection Act, or the Dodd-Frank Act, and the exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that the company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We may remain an “emerging growth company” until the fiscal year-end following the fifth anniversary of the completion of our initial public offering, though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if we become a large accelerated filer, (2) if our gross revenue exceeds $1.07 billion in any fiscal year or (3) if we issue more than $1.0 billion in non-convertible notes in any three year period. The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our shares less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our shares less attractive as a result, there may be a less active trading market for our shares and our stock price may decline and/or become more volatile.

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ITEM 4. | INFORMATION ON THE COMPANY

| A. | History and Development of the Company

We started our company in 2002 in Qingdao, Shandong Province, PRC. Our growth has been driven by two key factors: (i) a significant increase in the number of pet owners and in the size of the pet food market in China which translated into expansion opportunities for us, and (ii) a fundamental change in Chinese society towards pets, pet ownership and care, such that the trends of pet humanization and consumer concerns for pet health and wellness have created a dynamically growing industry for pet food and products. We price our products to be accessible to the average consumer, providing us with broad demographic appeal and allowing us to penetrate multiple market segments. Founded on these building blocks, as well as on our in-depth research and development, production, and sales capabilities, we strived to be one of the leading producers of pet food in the PRC and beyond.

Recent Developments

Nasdaq Compliance Matters

On November 12, 2020, the Company was informed that, following a 12-month compliance monitoring period under a Panel Monitor pursuant to a Compliance with Monitor letter dated October 29, 2019, the Company was currently in compliance with applicable Nasdaq Listing Rules, and the Panel has determined to continue the listing of the Company’s securities on The Nasdaq Stock Market.

COVID-19 Impact on the Company’s Operations

In December 2019, a novel strain of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized it as a pandemic. In response to the COVID-19 outbreak, governments around the global have implemented measures such as lockdowns, travel restrictions, and closures of businesses and schools. As a result of the COVID-19 outbreak, we have experienced suspension of operations, interruption of supply chain and decline in sales orders by our customers. Our businesses, results of operations, financial position and cash flows were adversely affected in fiscal year 2020, including but not limited to material negative impact to our total revenues, slower collection of account receivables and significant disruptions of our supply chains. Although we resumed our operations in May 2020 and the COVID-19 outbreak in China appears to have slowed down and most provinces and cities have resumed some business activities under the guidance and support of the government, a resurgence could negatively affect the execution of customer contracts, the collection of customer payments, or disruption of the Company’s supply chain. The continued uncertainties associated with COVID 19 may cause the revenue and cash flows to underperform in the next 12 months. The extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the financial statement reporting date.

Today, while our offices and manufacturing facilities remain open and business activities have fully resumed, we are closely monitoring all developments and are following the guidelines issued by local and national health authorities. We strive to accommodate and support our employees, while also maintaining our commitments to our customers. We expect the aforementioned negative impact will gradually mitigate in the future as the COVID-19 outbreak continues to become more controlled in China. Nevertheless, due to the uncertainty on future developments, which cannot be predicted with confidence at this time, we are not able to assess the overall or long-term effect the COVID-19 outbreak may have on our financial results and business operations.

Recent Private Placement

On December 2, 2020, the Company entered into subscription agreements with four accredited investors for the sale of 9,100,000 of the Company’s common shares at the price $0.30 per share for the gross proceeds of approximately $2.73 million. In April 2021, a total of 9,100,000 shares were issued to four investors with cash proceeds of $2,730,000. The shares were sold without registration under the Securities Act of 1933 in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and rules promulgated under the Securities Act as sales to accredited investors. The Company’s intention was to use the proceeds of this offering for working capital and general working purposes. There were no discounts or brokerage fees associated with this offering.

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Overseas sales refer to overseas wholesale sales. Our overseas sales have decreased from approximately $10.0 million to $0.2 million, or by approximately 98%, from the year ended December 31, 2019 to 2020. The decrease of revenue in 2020 was mainly due to: (1) stop taking unprofitable orders; (2) temporary suspension of our manufacturing activities in late 2019; (3) Since November 2019, we suspended our production and operations due to our default the loan repayments to financial institutions, claims from our suppliers and creditors and labor arbitration derived from our cutting down certain employees. The COVID-19 outbreak and spread further caused disruption in our supply chain, transportation and our sales activities from the beginning of 2020 to May 2020. As a result, we had the inability to fulfill sales orders from overseas customers on a timely manner and we received reduced sales orders from overseas customers and our sales volume significantly decreased in 2020 as compared to 2019.

Domestic sales refer to domestic wholesale sales. Our domestic sales were approximately $0.6 million and $2.7 million for the years ended December 31, 2020 and 2019, respectively, which accounted for approximately 71% and 21% of our total revenues in 2020 and 2019. The decrease of revenue in 2019 was mainly due to: (1) decrease in sales orders due to our uncompetitive sales price; (2) temporary suspension of our manufacturing activities in late 2019; (3) The COVID-19 outbreak and spread further caused disruption in our supply chain, transportation and our sales activities from the beginning of 2020 to May 2020. As a result, we had the inability to fulfill sales orders from domestic customers on a timely manner and we received reduced sales orders from customers and our sales volume significantly decreased in 2020 as compared to 2019.

Electronic commerce sales, including overseas and domestic electronic commerce sales, decreased from $0.08 million to $0.02 million, or by approximately 80%, from the year ended December 31, 2019 to 2020. The decrease was due to the suspension of our oversea E-commerce business, as it continued to incur operating losses. We have to stop selling unprofitable line products to avoid further worsen our balance sheets.

Although raw material costs of pet food increased significantly in 2020 and the industry became more competitive, the PRC pet food consumption continues to grow. Although we suffered significant decrease in our revenue by 93.6% or $11.8 million in 2020 as compared to 2019, and had a recurring net loss of approximately $0.87 million in 2020, in order to overcome current challenges to recover our production and normal business activities in 2021 and beyond, our business strategy is to place a significant strain on our sales and marketing capacities, administrative and operating infrastructure, manufacturing facilities and other resources. To effectively manage additional challenges brought in by the global spread of COVID-19 and maintain our growth, we also plan to evaluate and identify suitable strategic or acquisition opportunities, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of acquired businesses and companies.

Based on current plan, if the above mentioned initiatives can be achieved, We still see significant opportunities for our future growth:

| ● | Strength and variety of our brands – we currently offer more than 200 products, including dry meat treats, pet biscuits, canned food and other products (including non-food items like dog leashes, pet toys, etc.) under multiple brands and we have successfully sold our products to consumers in the PRC, Asia and Europe over the past years and we believe our brand awareness and connection with our existing customers may help us to bring our revenue back to track in the near future if we can continue to develop new products to appeal to customers and effectively market our products to them.

| ● | Product research & development – we believe our products are differentiated from those of our competitors in the PRC markets due to our in-depth research and development effort, our proprietary recipes, cooking and packing techniques developed over the last decade. Currently, we have been granted 20 invention and utility model patents, and have applied for 4 more patents. Although we did not have research and development spending in 2019 and 2020, looking forward, in order to diversify our product offering to meet customer demands in the future, we may incur additional R&D expenses in the coming years to maintain our competitive advantage.

| ● | Sales and marketing distribution – we utilize domestic and overseas multi-platform sales approach to connect our production output to customers in the PRC, Asia, Europe and North America. Although we reduced sale and marketing activities in 2019 and 2020 due to our suspension of our production and operations to deal with the pending claims, lawsuits and labor arbitrations, and due to adverse COVID-19 impact up to May 2020, in order to overcome these challenges and recoer our business operations going forward, in addition to the traditional sales approach, we plan to seek opportunities to re-utilize cross-border e-commerce platforms that contribute to the future expansion of our business.

| ● | Experienced and committed management team – our workforce is highly skilled in animal nutrition, sales and marketing.

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Our product line in excess of 200 products, including dry meat treats, pet biscuits, canned food and other products (including non-food items, e.g., dog leashes, etc.) under multiple brands in various geographical markets. Our products are available in multiple forms, including slice and serve rolls, strips, tubs, etc.

Currently, we offer 4 product lines:

| ● | Pet chews represent approximately 20% of our production and include various bones, rawhide and similar products,

| ● | Dried pet snacks represent approximately 66.6% of our production and include various fillets, strips and jerkies (chicken, duck, pork, lamb, etc.),

| ● | Wet canned pet foods represent approximately 8.6% of our production and include various fillets, strips and jerkies (chicken, duck, pork, lamb, etc.),

| ● | Dental health snacks foods account for approximately 4.8% of our production.

These food products vary from those consisting of a single protein ingredient (e.g., duck jerky) to those consisting of a combination of protein and other ingredients (e.g., twisted cod and chicken sandwich roll that includes chicken, cod and Vitamin E). Our proprietary recipes include fresh meat (beef, chicken, fish, duck and lamb) and varying combinations of vitamin-rich vegetables and anti-oxidant rich fruits. We believe our products appeal to diverse consumer needs and resonate across a broad cross-section of pet owner demographics.

We manufacture these products at our Pude facility with 4 production lines: dried meat, chews, wet canned, and dentifrice products.

In addition, historically, we strategically partnered with a select group of contract manufacturers to supplement and enhance our production capabilities, and we plan to continue to forge partnership with selected contract manufacturers going forward. Currently, we have outsourcing agreements with multiple pet food manufacturers for the duration of up to 3 years, to secure additional production capabilities to address peak or high demand for our products. Under the terms of these agreements, our suppliers must meet all of our manufacturing requirements, including, among others, those relating to quality control, staffing, training and equipment. All manufacturing under these agreements is made in accordance with our demands, timing and specifications. These facilities are, at all times, staffed and supervised by our personnel.

As of December 31, 2020 and as of the date of this filing, we have employed 54 full-time employees at our facilities. Our daily production capacity for all of our production facilities is approximately 5.4 tons. The following is a summary description of our production facilities (not including any of the outsourcing facilities used to support our production needs):

| ● | The Pude facility maintains a production area of 30,565 sq. feet with a 20-year export processing history. We maintain ISO9001, hazard analysis critical Control Points (HACCP), British Retail Consortium (BRC) and International Characteristic Standards (IFS) certification, as well as EU and Japanese registered facilities. The daily production capacity for this facility is approximately 4.6 tons.

| ● | The Haiqing facility has a production area of 100,233 sq. feet and maintains an export commodity inspection registration from Shandong Huangdao Bureau of Inspection and Quarantine. Our daily production capacity at this facility is approximately 1.3 tons. Haiqing facility was sold in November 2019.

| ● | The Zhangjialou facility has a usage area of 21,528 sq. feet. We closed it in June 2019 due to the expiration of the lease.
| ● | The Jiaozhou facility has production area of 30,062 square feet. Our daily production capacity at this facility is approximately 0.8 ton.

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We also maintain a call service center in Qingdao with 2 trained, multilingual personnel to address customer service matters arising from our sales in the PRC and abroad.

Our sales and marketing team consists of 2 integral groups – an original design manufacturer (ODM) domestic (PRC) marketing group, and an ODM overseas marketing group. We operate a B2F (business-2-factory) business model which is focused on the needs of the business market. Our model relies on our R&D strength to devise product lines to cater to this market, providing our customers with personalized and customized products. Our marketing team works in tandem with our brand promotion team which focuses on brand promotion. As a part of our ODM production process, we continuously accumulate a large amount of market information about our customers, in the PRC and abroad, which assists us in making appropriate selection of products. We utilize online sale and multi-brand, multi-store brand sale strategies. Using Tmall.com, JD.com and 1688 as our marketing platforms, our PRC marketing group has established a comprehensive network of various brand shops.

The following chart reflects our organizational structure as of the filling date:

On August 9, 2016, Qingdao Kangkang Development Co., Ltd. (“Kangkang Development”) was incorporated in Qingdao City, Shandong Province, PRC. Kangkang Development did not have active business operations since its incorporation, and has been deregistered and dissolved in 2019.

On November 14, 2017, a 55% owned subsidiary of the Company, Yichong (Qingdao) Technology Co., Ltd. (“Yichong”) was incorporated in Qingdao City, PRC. Yichong had no active business operations since its incorporation. In September 2019, the Company transferred all its ownership interests in Yichong to a third party. As a result, Yichong was deconsolidated from the Company since September 2019 and not included in our consolidated financial statements for the year ended December 31, 2020.

On November 29, 2017, a 55% owned subsidiary of the Company, Qingdao Lingchong Information Technology Co., Ltd. (“Lingchong”) was incorporated in Qingdao City, PRC. Lingchong had no active business operations since its incorporation. In July 2019, the Company transferred all its ownership interests in Lingchong to a third party. As a result, Lingchong was deconsolidated from the Company since July 2019 and not included in our consolidated financial statements for the year ended December 31, 2020.

On January 3, 2018, a 100% owned subsidiary, Qingdao Lile Pet Foodstuffs Co., Ltd. (“Lile”) was incorporated in Qingdao City, Shandong province, PRC. Lile had no active business operations since its incorporation, and it has been deregistered and dissolved since 2019 and not included in our consolidated financial statements for the year ended December 31, 2020.

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On September 20, 2018, the Board has approved acquisitions by the Company of TDH Group BVBA, a company established under the laws of Belgium and TDH JAPAN, a company established under the laws of Japan. In connection with the foregoing transactions the Company executed Share Sale and Purchase Agreements (together, the “Agreements”) pursuant to which the Company agreed to pay approximately USD$ 936,782 and USD $156,130 (RMB 6 million and RMB 1 million), respectively, to acquire all of outstanding securities of TDH Group BVBA and TDH JAPAN, respectively, from the sole shareholder of each entity, Rongfeng Cui, the Company’s former CEO. The purchase consideration under the Agreements was paid by issuance of 936,782 and 156,130 restricted common shares of the Company, respectively. Rongfeng Cui incorporated TDH Group BVBA in 2012 and TDH JAPAN in 2017 to develop and maintain all the clients in Europe and Japan, and to distribute and expand product sales in European and Japanese markets. Effective August 2, 2019, Rongfeng Cui ceased to be Company’s CEO and Dandan Liu was appointed as the CEO in his stead. TDH Japan has been deregistered and dissolved in February 2021. As of the date of this filing, TDH Group BVBA is currently under bankruptcy proceeding.

On January 22, 2020, Qingdao Tiandihui Pet Foodstuffs Co., Ltd. (“Tiandihui Pet Foodstuffs”) was incorporated in Qingdao City, PRC.

On January 21, 2020, Qingdao Tiandihui Foodstuffs Sales Co., Ltd. (“Tiandihui Foodstuffs Sales”) was incorporated in Qingdao City, PRC. Tiandihui Foodstuffs Sales is a wholly owned subsidiary of Tiandihui Pet Foodstuffs.

On February 27, 2020, TDH Foods Limited was incorporated in Hong Kong, with the purpose of being a holding company for equity interests in Tiandihui Pet Foodstuffs. TDH Foods Limited does conduct any operations or own any material assets or liabilities.

On August 24, 2020, TDH Holdings, Inc. acquired 100% equity interests of TDH Foods Limited.

In December 2020, TDH Holdings Inc. acquired remaining 1% equity interest of TDH Petfood LLC. As a result, TDH Petfood LLC became a wholly-owned subsidiary of TDH Holdings, Inc.

The Initial Public Offering

On September 25, 2017, we completed our initial public offering of 1,325,000 common shares at $4.25 per share, for total gross proceeds of approximately $5.63 million. In addition, on September 28, 2017, we announced that ViewTrade Securities, Inc., who acted as the managing underwriter and sole book-runner of our IPO, had exercised the full over-allotment option to purchase an additional 198,750 shares at the IPO price per share. As a result, the Company has raised gross proceeds of approximately $844,688, in addition to the previously announced IPO gross proceeds of approximately $5.63 million, before underwriting discounts and commissions and offering expenses. Our common shares began trading on the NASDAQ Capital Market on September 21, 2017 under the ticker symbol “PETZ”.

| B. | Business Overview

Overview

We started our company in 2002 in Qingdao, Shandong Province, PRC with a single mission of becoming a premier producer of high-quality pet food for pet owners in China and worldwide. Historically, our growth has been driven by two key factors: a significant increase in the number of pet owners and in the size of the pet food market in China which translated into expansion opportunities for us, and a fundamental change in Chinese society towards pets, pet ownership and care, such that the trends of pet humanization and consumer concerns for pet health and wellness have created a dynamically growing industry for pet food and products. We price our products to be accessible to the average consumer, providing us with broad demographic appeal and allowing us to penetrate multiple market segments.

Due to the sharp rise in market price of raw materials, the lack of operational efficiency of our production facilities and our inability to make bank loan repayment upon maturity, we have suspended our production and normal business operations and we were involved in certain legal proceedings since November 2019. The COVID-19 outbreak and spread further disrupted our business activities from the beginning of 2020 up to May 2020 when we resumed our business operations. These factors led to significant decrease in our revenue by 93.6% or $11.8 million in 2020 as compared to 2019, and we suffered recurring net loss of approximately $0.87 million in 2020.

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We are now facing challenges to recover our production and normal business activities. Our future growth may place a significant strain on our sales and marketing capacities, administrative and operating infrastructure, manufacturing facilities and other resources. To effectively manage additional challenges brought in by the global spread of COVID-19 and maintain our growth, we also need to evaluate and identify suitable strategic or acquisition opportunities, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of acquired businesses and companies. If we are unable to effectively address these challenges, our ability to execute acquisitions as a component of our long-term strategy will be impaired, which could have an adverse effect on our growth. We also need to expand our customer base, refine our operational, financial and management controls and reporting systems and procedures. If we fail to efficiently manage this expansion of our business, our costs and expenses may increase more than anticipated and we may not successfully attract a sufficient number of customers in a cost-effective manner, respond to competitive challenges, or otherwise execute our business plans. In addition, we may, as part of carrying out our growth strategies, adopt new initiatives to implement new pricing models and strategies. We cannot assure you that these initiatives may achieve the anticipated results.

As a result of our suspension of our production in November 2019 which was further negatively impacted by the COVID-19 outbreak and spread in 2020, we have reduced our number of employees in response to current challenges. As of December 31, 2020 and as of the date of this filing, we have employ around 54 full-time employees at our facilities. With the exception of our subsidiary’s offices located in Beijing, all of our production, executive, sales/marketing and customer service facilities covering the PRC and overseas markets are located in Shandong Province, PRC.

Our Industry and Market

China Pet Food Industry

While the global pet food market is well-established worldwide, in China it is a relatively new industry. China’s economy has shown steady growth over the last decade, from a GDP per capita of $1,509 in 2004 to $10,261 in 2019. According to the National Bureau of Statistics of China (NBS China) and GfK, in 2015, China ranked (i) 3rd in the world in the number of registered pet dogs (27.4 million dogs), following the U.S. and Brazil, and (ii) 2nd in the number of registered pet cats (58.1 million cats), following the U.S. With an increase in the number of pets in most households in China, the pet food industry in China has been and remains poised for significant growth. Pet food consumption in China increased from approximately RMB 5.26 billion in 2010 to RMB 44.06 billion in 2020, The compound growth rate is 25%. The average price per kilogram of pet food and treats rose to about RMB45 (US$6.77) in April 2016, a 12.5% increase since 2013, reflecting the nascent yet increasing premiumization of the market, projected to reach approximately RMB 11.82 billion (US$1.77 billion) by the end of 2016, representing approximately 19% growth, year over year. At this rate, we expect for the industry consumption rates to increase to approximately RMB 238 billion. On the production side, production volume reached 1.8 million tons in 2020. Production will exceed 2 million tons in 2021.

The growth in this industry is largely a function of consumer education and increased awareness of pet food products, product ingredients, quality, brand awareness and loyalty. We consider pet humanization to be another driving factor behind the growth trend, i.e., where pet owners view their pets as members of the family. As pets are increasingly viewed as companions, friends, and family members, pet owners spare no expense for their pets, driving premiumization across pet categories. This trend is reflected in food purchasing decisions such that pet owners are as concerned about the quality of their pet’s food as they are about their own. The PRC consumers are becoming more discerning when it comes to quality of pet food for their pets, especially when it comes to food specific to particular breed needs, etc. In addition, (i) an increase in living standards of urban population which resulted from the growth of the PRC economy at large and the corresponding accelerated rates of urban development and expansion, and (ii) higher rates of aging population in major urban areas in the PRC which tend to encourage more independent lifestyles (e.g. the proportion of the PRC population over 65 has continued to grow, with the rate reaching over 12.6% in 2019), cause more people to view and treat their pets as their close companions. In China, most people who have pet dogs or cats in China are, in fact, elderly. According to the NBS China, approximately 61% of the 65+ age group live with a pet, as compared with the national average of 44%; only the 25-29 age group exhibits similar levels of pet ownership. We anticipate that these trends will continue in the foreseeable future.

While the multinational brands still dominate the Chinese pet food market, the market growth is being driven by local brands, especially in pet shops, with 29% growth for domestic cat food brands overall and 10% in pet shops (though cat food represents just 35% of the market). With dog food, sales increase for domestic brands are more modest—about 9% overall and nearly 10% in pet shops—but the average price per kilogram of domestic dog foods brands is growing much closer to that of multinational brands.

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Aside from rapid growth, the China pet food market is also characterized by increasing online sales as the share of overall sales, with 55% of all sales in 2020 to be made online. In 2020, online pet food sales in China have reached RMB 24.billion. In addition, China’s sales skew heavily toward specialized retailers (80%) as contrasted with mass merchants in the rest of the world (e.g. in Western Europe, the breakdown is almost exactly the reverse).

Our Competitive Strengths

Although we suffered significant decrease in revenue and had a recurring loss in 2020, given oyr current recovery plan, we believe the following strengths can still differentiate us from our competitors in our market in China:

| ● | Strength and variety of our brands – we offer in excess of 200 products, including dry meat treats, pet biscuits, canned food and other non-food products (e.g. dog leashes, pet toys etc.) under multiple brands that are well-established and recognizable by consumers in the PRC, Asia and Europe.

| ● | Product research & development – we believe that our products are differentiated from those of our competitors in the PRC markets due to our in-depth research and development effort and our proprietary recipes and cooking techniques developed over the last decade. Although we did not incur any R&D expenses in 2020, partly due to our temporary suspension of our manufacturing activities in 2019, looking forward, in order to diversify our product offering to meet customer demands in the future, we may incur additional R&D expenses in the coming years to maintain our competitive advantage.

| ● | Sales and marketing distribution – our multi-platform sales approach connects our production output to customers in the PRC, Asia, Europe and North America.

| ● | Experienced and committed management team - Tiandihui’s workforce is a highly skilled with specialized training designed to address complex customer care engagements; our entrepreneurial management team includes employees who have significant experience in animal nutrition, sales and marketing, among others. Our management team is comprised of an experienced group of executives, many of whom have many years of operating experience.

We intend to continue capitalizing on our strengths in order to achieve a business turnaround for sales growth and profitability in the near future.

Our History and Corporate Structure

We are a holding company incorporated in the British Virgin Islands (incorporated on September 30, 2015) that owns all of the outstanding capital stock of TDH HK Limited, our wholly-owned Hong Kong subsidiary (TDH HK). We also own all of the outstanding capital stock of TDH Foods Limited, another wholly-owned Hong Kong subsidiary, and holds a 100% interest in TDH Petfood LLC, a Nevada limited liability company. TDH HK, in turn, owns all of the outstanding capital stock of Qingdao Tiandihui Foodstuffs Co., Ltd., our operating subsidiary based in Qingdao City, Shandong Province, China, incorporated in April 2002 as a PRC limited liability company (Tiandihui). TDH Foods Limited owns 100% of the outstanding capital stock of Qingdao Tiandihui Pet Foodstuffs Co., Ltd, with its wholly-owned subsidiary of Qingdao Tiandihui Foodstuffs Sales Co., Ltd. TDH HK Limited owns 100% of the outstanding capital stock of Qingdao Tiandihui Foodstuffs Co., Ltd., with its wholly-owned subsidiary of Beijing Chongai Jiujiu Cultural Communication Co., Ltd..

On September 20, 2018, the Board approved acquisitions by the Company of TDH Group BVBA, a company established under the laws of Belgium and TDH JAPAN, a company established under the laws of Japan. In connection with the foregoing transactions the Company executed Share Sale and Purchase Agreements (together, the “Agreements”) pursuant to which the Company agreed to pay approximately USD$ 936,782 and USD $156,130 (RMB 6 million and RMB 1 million), respectively, to acquire all of outstanding securities of TDH Group BVBA and TDH JAPAN, respectively, from the sole shareholder of each entity, Rongfeng Cui, the Company’s former CEO. The purchase consideration under the Agreements was paid by issuance of 936,782 and 156,130 restricted common shares of the Company, respectively. Rongfeng Cui incorporated TDH Group BVBA in 2012 and TDH JAPAN in 2017 to develop and maintain all the clients in Europe and Japan, and to distribute and expand product sales in European and Japanese markets. TDH Japan has been deregistered and dissolved in February 2021. As of the date of this filing, TDH Group BVBA is currently under bankruptcy proceeding.

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Our Products

The pet food market consists of dog food and cat food sales. Food sales are further categorized as dry food, wet food and treats:

| ● | Dry food is the primary food form for both dogs and cats, with the same formula typically purchased regularly. Veterinarians recommend dry food for healthy pets as the main meal, which is better for pets’ teeth, has better economic value and is more convenient to handle and store

| ● | Wet food has higher penetration among cats as compared to dogs, as it helps to ensure that cats meet their required water intake. Most cat owners feed their cats a combination of dry and wet foods as main meals, while most dog owners feed their dogs wet foods as a treat or topper to provide variety

| ● | Treats are typically impulse purchases by pet owners made alongside staple, main meal dry and wet food purchases. Many treats have dental and training benefits and also serve as nutritional supplements. Dog and cat treats have been growing rapidly over the last decade driven by the humanization trend with pet owners indulging their pets more, including by purchasing treats as gifts.

Product research and innovation is pivotal to our growth strategy. Our experienced team of marketing and R&D professionals is in constant contact with our outside collaborators and experts. The success of our approach is evidenced by our broad product portfolio today. Although our R&D expense decreased in 2020, we strive to maintain a strong innovation pipeline that expands the breadth of our current product offerings.

We offer in excess of 200 products, including dry meat treats, pet biscuits, canned food and other products (including non-food items like dog leashes and pet toys) under multiple brands in various geographical markets. Currently, we offer 4 product lines including the following:

| ● | Pet chews represent approximately 20% of our production and include various bones, rawhide and similar products,

| ● | Dried pet snacks represent approximately 66.6% of our production and include various fillets, strips and jerkies (chicken, duck, pork, lamb, etc.),

| ● | Wet canned pet foods represent approximately 8.6% of our production and include various fillets, strips and jerkies (chicken, duck, pork, lamb, etc.),

| ● | Dental health snacks foods account for approximately 4.8% of our production.

We manufacture these products at our Pude facility with 4 production lines: dried meat, chews, wet canned, and dentifrice products.

These food products vary from those consisting of a single protein ingredient (e.g., duck jerky) to those consisting of a combination of protein and other ingredients (e.g., twisted cod and chicken sandwich roll that includes chicken, cod and Vitamin E). Our proprietary recipes include fresh meat (beef, chicken, lamb, and fish) and varying combinations of vitamin-rich vegetables, and anti-oxidant rich fruits. We believe our products appeal to diverse consumer needs and resonate across a broad cross-section of pet owner demographics. Our products are available in multiple forms, including slice and serve rolls, strips, tubs, etc.

| ● | The Pude facility maintains a production area of 30,565 sq. feet with a 20-year export processing history. We maintain ISO9001, hazard analysis critical Control Points (HACCP), British Retail Consortium (BRC) and International Characteristic Standards (IFS) certification, as well as EU and Japanese registered facilities. The daily production capacity for this facility is approximately 4.6 tons.

| ● | The Jiaozhou facility has production area of 30,062 square feet. Our daily production capacity at this facility is approximately 0.8 ton.

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Supply Chain

Manufacturing

All of our products are manufactured in the PRC. As of the date of this filing, we own one manufacturing facility- The Pude facility in the Shandong province for a total production area of approximately 30,565 square feet built to high quality food production standards.we also leased the Jiaozhou facility with production area of 30,062 square feet and daily production capacity at this facility is approximately 0.8 ton. In 2020, 2019 and 2018, 97%, 40% and 42%, respectively, of our product volume was manufactured by us. We also strategically partner with a select group of contract manufacturers that manufacturing facilities to supplement our production needs.

Ingredients and Packaging

Our products are made with fresh ingredients including meat (chicken, beef, lamb, fish, etc.), vegetables, fruits, vitamins and minerals. We use quality food grade plastic packaging materials and maintain rigorous overall standards for ingredient quality and safety. In addition, we maintain one raw material procurement center which provides a single-source supply for all our manufacturing facilities to maintain quality control throughout the production facilities. Also, in order to retain operating flexibility and negotiating leverage, we do not enter into exclusivity agreements or long-term commitments with any of our suppliers. All of our suppliers are established PRC companies that have the scale to support our growth. For every ingredient, we have sources of supply that meet our quality and safety standards.

Distribution

Our facilities are located in the coastal city of Qingdao, near Qingdao International Airport and the international Qingdao harbor, which proximity ensures efficient international transportation by sea/air. Outbound transportation from our facility is primarily handled through transportation by sea, which deliver our products to our customers. As our volumes grow, we expect to be able to leverage our distribution costs.

Quality Control

We are committed to the highest quality of products that leave our facilities. To that end, we have implemented a rigid quality control system and devote significant attention to quality control procedures at every stage of our process, including spot testing of finished products. Our entire food processing chain, from sourcing of raw materials to the finished products, is closely monitored to ensure that all pet food products meet the highest level of global hygienic and quality standards. We monitor our manufacturing process closely and conduct performance and reliability testing to ensure our products meet our end-user customer expectations. Our quality control group as of December 2020 included 3 employees that implement various management systems to improve product quality programs, most of whom are trained in quality control and nutrition. We spot test and inspect our raw materials to ensure compliance with quality standards. We also evaluate the quality and delivery performance of each supplier periodically and adjust quantity allocations accordingly. We also monitor in-process and outgoing stages of our processes.

We have established control points throughout the entire supply chain from ingredient sourcing to finished goods to ensure compliance with our quality program. We require our contract and owned manufacturing facilities to maintain the same quality standards as those at our facilities and pass our own quality system and food safety inspections. We ensure that all of our ingredients are rigorously tested prior to being approved for use in our products. Testing certifications which confirm that the ingredient meets our specifications as to quality and safety, accompany every shipment. In addition, our food safety and quality program include strict guidelines for incoming ingredients, batching, processing, packaging and finished goods. However, despite our strict quality controls, it is possible that there may be from time to time, as there has been in the past, issues or concerns with respect to our products.

Quality Certifications and Accreditations

In a continuous effort to meet various international production and quality manufacturing standards, we have a number of certifications and accreditations. We have secured these certifications and accreditations to show evidence of high-quality manufacturing standards that we apply to our production and managements processes and to access domestic and foreign markets. We believe that maintaining objectively verifiable quality standards fosters consumer confidence and loyalty and maximizes customer satisfaction and recognition.

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Sales and Marketing

Our sales and marketing team consists of 2 integral groups – an original design manufacturer (ODM) domestic (PRC) marketing group, and an ODM overseas marketing group. We operate a B2F (business-2-factory) business model which is focused on the needs of the business market. Our model relies on our R&D strength to devise product lines to cater to this market, providing our customers with personalized and customized products. Our marketing team works in tandem with our brand promotion team which focuses on brand promotion. As a part of our ODM production process, we continuously accumulate a large amount of market information about our customers, in the PRC and abroad, which assists us in making appropriate selection of products. We utilize online sale and multi-brand, multi-store brand sale strategies. Using Tmall.com, JD.com and 1688 as our marketing platforms, our PRC marketing group has established a comprehensive network of various brand shops.

We maintain a call service center in Qingdao with 2 trained, multilingual personnel to address customer service matters arising from our sales in the PRC and abroad.

Competition

The market for pet food and related products in the PRC is emerging and highly competitive. In prior years, Chinese pet food manufacturers were viewed in the pet food industry as suppliers of cheaper food and snack products for pets which were almost always delivered under Western brand name products. The competitive landscape is changing now as a number of PRC-based manufacturers operate and compete domestically and worldwide alongside with other major industry players. The PRC market is characterized by price competition, product quality and the presence of a number of medium to large companies, as discussed below. Relatively high barriers of entry for new participants into this industry include relatively large initial capital outlays, uncertain regulatory environment, scarcity of suitable production, raw material supply sources, and skilled management. Thus, if we do not compete effectively, our operating results could be harmed.

Mars Foods (China) Co. Pvt. Ltd., Royal Canin Au Yu (Shanghai) Pet Food Co Ltd. and Nestle (China) are three largest players in the PRC pet food industry. In recent years, Mars Foods (China) Co. Pvt. Ltd. consolidated its leadership in the category with a market share of 11.4% in 2020. Royal Canin enjoys a widespread nationwide distribution network. In addition, the company runs an official flagship store on the largest B2C online platform in China, Tmall.com, to reach out to wider range of consumers.

We compete primarily on the basis of our product range, reputation, product quality, brand loyalty, and total value delivered. We are subject to pricing pressures and may experience a decline in average selling prices for our products. We attempt to mitigate these pricing pressures by differentiating ourselves from our competition based on the value we bring to our clients through the quality and variety of our products.

Our competitors include the following PRC-based manufacturers:

| ● | Yantai China Pet Foods Co., Ltd. - Established in 1998, Yantai China Pet Foods Co., Ltd. is one of the leading manufacturers of pet snacks in China. This company is publicly traded in Shenzhen stock exchange (002891.SZ), which offers approximately 500 products in eleven product lines with products distributed to the UK, the US, Japan, Germany, Korea, Hong Kong, Singapore, Russia, France, the Netherlands, Czech Republic, the Middle East, Australia, New Zealand, and other countries and regions.

| ● | Wenzhou Peidi Pet Products Co., Ltd. – Founded in 2002, Wenzhou Peidi is a Shenzhen stock exchange (300673.SZ) publicly traded large-scale manufacturer of pet products and food in Zhejiang Province, China. It specializes in rawhide chews, leather collars and leashes, as well as nutritional pet food, treats, toys and gifts and markets these products on a worldwide basis.

| ● | Guaibao Pet Food Group Co., Ltd. – Established in June 2006, it is a comprehensive enterprise integrating research and development, production and sales of pet food. Its main products are pet food for dogs and cats, dried and freeze-dried snacks, canned wet food, chewing gum, cleaning teeth and other categories of pet food.

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Seasonality

Overall pet food sales experience modest seasonality during the fourth quarter, which is when pet owners tend to spend more on pet treats as gifts, being approximately 22% higher than during summer months.

Research & Development

Our research and development team works to improve our existing and develop future pet food products. Our production processes are developed based upon a number of in-house developed technologies. The primary focus of such technologies is on customer needs, which allows us to maintain an effective market-oriented research and development model. We are dedicated to the research and development of new products and the technical improvement and formulation updating of existing products. To this end, we are equipped with a professional R&D team, and have obtained a number of invention and utility model patents. Our R&D team consists of 3 technicians with bachelor’s degree as of December 31, 2020. Although we have lost most of our previous R&D professionals since November 2019, we have retained key technologies. In addition, we cooperate with external technical experts and suppliers to obtain new technologies and development directions in a timely manner.

We also gather and collect data on product customization for each pet species to develop our internal research capabilities in devising scientifically balanced of pet nutrition. Although we don’t have spending R&D in 2020, looking forward, in order to diversify our product offering to meet customer demands in the future, we may incur additional R&D expenses in the coming years to maintain our competitive advantage.

Intellectual Property

The PRC has domestic laws for the protection of rights in copyrights, patents, trademarks and trade secrets. The PRC is also a signatory to all of the world’s major intellectual property conventions, including:

| ● | Convention establishing the World Intellectual Property Organization (June 3, 1980);

| ● | Paris Convention for the Protection of Industrial Property (March 19, 1985);

| ● | Patent Cooperation Treaty (January 1, 1994); and

| ● | Agreement on Trade-Related Aspects of Intellectual Property Rights (November 11, 2001).

The PRC Trademark Law, adopted in 1982 and revised in 2013, with its implementation rules adopted in 2014, protects registered trademarks. The Trademark Office of the State Administration of Industry and Commerce of the PRC, handles trademark registrations and grants trademark registrations for a term of ten years.

Our primary trademark portfolio consists of 16 registered trademarks. Our trademarks are valuable assets that reinforce the distinctiveness of our brand and our consumers’ favorable perception of our products. The current registrations of these trademarks are effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, comply with all applicable renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods. In addition to trademark protection, we own 4 URL designations/domain names, including tdhpet.cn, tdhpet.com,, tdhpetfood.com and tiandihui.com. We also own 1 copyright, the name of which is the Mascot of Chongai Jiujiu-Huihui, and will expire on December 31, 2064.

On September 1, 2016, we entered into an exclusive 10-year trademark using agreement with TDH Group BVBA, a limited liability company organized under the laws of Belgium (TDH BVBA), under which agreement we have secured right to the exclusive usage of “ Pet Cuisine” and “Hum & Cheer” trademarks worldwide, from September 1, 2016 to August 31, 2026 in consideration for the exclusive fee of 5% of the total sales of such products which used those two trademarks, payable every six months. In November 2018, we completed acquisition of TDH BVBA.

Patents in China are principally protected under the Patent Law of China. The duration of a patent right is either 10 years (utility model or design) or 20 years (invention) from the date of application, depending on the type of patent rights.

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Currently, we hold the following design patents pertaining to the pet food products:

No. |  | Name of Patent |  | Patent Number |  | Types |  | Date of authorization |
1 |  | A chicken cartilage composite functional dog food and preparation method |  | 201310653084.4 |  | Invention |  | May 20, 2015 |
2 |  | A pet dog food and its preparation method |  | 201310651439.6 |  | Invention |  | August 5, 2015 |
3 |  | A preparation method of beef flavor nutrition canned food canned food |  | 201310651598.6 |  | Invention |  | May 20, 2015 |
4 |  | A full price nutritive semi wet pet dog food and preparation method |  | 201310654269.7 |  | Invention |  | May 20, 2015 |
6 |  | A hermaphrodite breeding device for pet dog |  | 201520651073.7 |  | utility model |  | January 6, 2016 |
7 |  | A pet dog’s molars knot bone |  | 201520651112.3 |  | utility model |  | March 2, 2016 |
8 |  | A new kind of pet food |  | 201520651920.X |  | utility model |  | March 2, 2016 |
9 |  | A pet cat bone cleaning bone |  | 201520649912.1 |  | utility model |  | June 1, 2016 |

Our intellectual property rights are important to our business. We rely on a combination of trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We also rely on and protect unpatented proprietary expertise, recipes and formulations, continuing innovation and other trade secrets to develop and maintain our competitive position.

We enter into confidentiality agreements with most of our employees and consultants, and control access to and distribution of our documentation and other licensed information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively weak, it is often difficult to enforce intellectual property rights in China. Policing unauthorized use of our technology is difficult and the steps we take may not prevent misappropriation or infringement of our proprietary technology. In addition, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of our resources and could have a material adverse effect on our business, results of operations and financial condition.

We require our employees to enter into non-disclosure agreements to limit access to and distribution of our proprietary and confidential information. These agreements generally provide that any confidential or proprietary information developed by us or on our behalf must be kept confidential. These agreements also provide that any confidential or proprietary information disclosed to third parties in the course of our business must be kept confidential by such third parties. In the event of trademark infringement, the State Administration for Industry and Commerce has the authority to fine the infringer and to confiscate or destroy the infringing products.

Properties

Under Chinese law, all of the land in China is either state-owned or collectively-owned, depending on its location and the specific laws governing such land. Collectively-owned land is owned by rural collectives and generally cannot be used for non-agricultural purposes unless approved by the Chinese government. Collectively-owned land cannot be transferred, leased or mortgaged to non-collectives without first being converted into state-owned land. Individuals and entities may acquire rights to use state-owned land, or land-use-rights, for commercial, industrial or residential purposes by means of mutual agreement, tender, auction or listing for sale from local land authorities or an existing holder of a land-use-right. Land-use-rights granted for commercial, industrial and residential purposes may be granted for a period of up to 40, 50 or 70 years, respectively. This period may be renewed at the expiration of the initial and any subsequent terms, subject to compliance with relevant laws and regulations. Land-use-rights are transferable and may be used as security for borrowings and other obligations.

Our principal executive office is located at Qingdao Tiandihui Foodstuffs Co. Ltd., 2521 Tiejueshan Road, Huangdao District, Qingdao, Shandong Province, PRC. Our telephone number is +86 532-8615-7918. Our website address is www.tiandihui.com. The information on our website is not part of this Annual Report.

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In addition, the Company manages and operates several other facilities, including one export subsidiaries/factories and one PRC product processing factory that are located in Qingdao. Our facilities are located in the coastal city of Qingdao, near Qingdao International Airport and the international Qingdao harbor, which proximity ensures efficient international transportation by sea/air. Our facilities are used for customer service, sales and marketing, R&D and administrative functions. We believe our facilities are adequate for our current needs.

A summary description of our facilities is as follows (this list does not include any of the outsourcing facilities that we may, from time to time, use to support our production needs):

|  |  |  | Capacity Ton per day |  |  | Location |  | Total area (square feet) |  |  | rent/owned |
1 |  | Pude facility |  |  | 4.6 |  |  | West point, Tiejueshan Road, Huangdao District, Qingdao City |  |  | 30,565 |  |  |  | owned |
2 |  | Jiaozhou facility |  |  | 0.8 |  |  | Shiqian Village, Ducun Town, Jiaozhou City, Shandong Province |  |  | 30,062 |  |  |  | rent |
|  | Total |  |  | 5.4 |  |  |  |  |  | 60,627 |  |  |  |  |

Our daily production capacity for all of our production facilities is approximately 5.4 tons.

We own the Pude facility which has a 20-year export processing history. We maintain ISO9001, hazard analysis critical Control Points (HACCP), British Retail Consortium (BRC) and International Characteristic Standards (IFS) certification, as well as EU and Japanese registered facilities. The daily production capacity of our factory is approximately 5.4 tons.

Government Regulation

In the U.S., the Food and Drug Administration regulates both content and labeling of all animal food, China does not have a significant body of pet food laws, rules or regulations. Various regulatory agencies (e.g., the Ministry of Agriculture, the General Administration for Quality Supervision, Inspection and Quarantine) administer a set of standards, but there appears to be no single regulatory or administrative agency that is fulfills the comprehensive regulatory function. We are also subject to PRC labor and employment laws, laws governing advertising and other laws. We monitor changes in these laws and believe that our operations are in compliance in all material aspects with all PRC rules and regulations applicable to pet food production. However, many such rules and regulations are subject to extensive interpretive power of governmental agencies and commissions, and there is substantial uncertainty regarding the future interpretation and application of these laws or regulations.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval of State Administration of Foreign Exchange (SAFE) or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign-invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans. The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.

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Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of the PRC (1993), as amended in 2013, the Foreign Investment Enterprise Law (1986), as amended in 2000 and 2016 respectively, and the Administrative Rules under the Foreign Investment Enterprise Law (1990), as amended in 2001 and 2014 respectively. Under these regulations, wholly foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise is not permitted to distribute any profits until losses from prior fiscal years have been offset.

Circular 37. On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required by SAFE and its branches. Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000 for an individual. PRC residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Circular 37.

New M&A Regulations and Overseas Listings

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, China Security Regulation Commission (CSRC) and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement. Our PRC counsel has advised us that, based on their understanding of the current PRC laws and regulations:

| ● | We currently control the Operating Companies by virtue of TDH HK Holding acquiring 100% of the equity interests of Qingdao Tiandihui, which are regulated by the New M&A Rule. According to the New M&A Rule, when a domestic company or a domestic natural person, through an overseas company established or controlled by it, to acquire a domestic company’s equity interest which is related to or connected with it, approval from Ministry of Commerce is required. At the time of our equity interest acquisition, as the acquiree, Qingdao Tiandihui was not related to or connected with the foreign investor, or the acquirer, TDH HK Holding. Accordingly, we did not need the approval from Ministry of Commerce. In addition, we have received all relevant approvals and certificates required for the acquisition.

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| ● | We currently control the Operating Companies by virtue of TDH Foods Limited acquiring 100% of the equity interests of Tiandihui Pet Foodstuffs, which are regulated by the New M&A Rule. According to the New M&A Rule, when a domestic company or a domestic natural person, through an overseas company established or controlled by it, to acquire a domestic company’s equity interest which is related to or connected with it, approval from Ministry of Commerce is required. At the time of our equity interest acquisition, as the acquiree, Tiandihui Pet Foodstuffs was not related to or connected with the foreign investor, or the acquirer, TDH Foods Limited. Accordingly, we did not need the approval from Ministry of Commerce. In addition, we have received all relevant approvals and certificates required for the acquisition.

| ● | The CSRC approval under the New M&A Rule only applies to overseas listings of SPVs that have used their existing or newly issued equity interest to acquire existing or newly issued equity interest in Chinese domestic companies, or a SPV-domestic company share swap. TDH Holdings, Inc. does not constitute a SPV that is required to obtain approval from the CSRC for overseas listing under the New M&A Rule because there has not been any SPV-domestic company share swap in our corporate history; and

Notwithstanding the above analysis, the CSRC has not issued any definitive rule or interpretation regarding whether offerings like the one contemplated by this Annual Report are subject to the New M&A Rule.

Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries

An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly Foreign-owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, all as amended from time to time, and their respective implementing rules; the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment.

Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAIC, MOFCOM and SAFE. Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange. Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to the governmental approval.

ITEM 4A. | UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

We started our company in 2002 in Qingdao, Shandong Province, PRC with a single mission of becoming a premier producer of high-quality pet food for pet owners in China and worldwide. Our growth has been driven by two key factors: a significant increase in the number of pet owners and in the size of the pet food market in China which translated into expansion opportunities for us, and a fundamental change in Chinese society towards pets, pet ownership and care, such that the trends of pet humanization and consumer concerns for pet health and wellness have created a dynamically growing industry for pet food and products. We price our products to be accessible to the average consumer, providing us with broad demographic appeal and allowing us to penetrate multiple market segments. Founded on these building blocks, as well as on our in-depth research and development, production, and sales capabilities, we believe we are well prepared to be one of the leading producers of pet food in the PRC and beyond.

We are a holding company incorporated in the British Virgin Islands (incorporated on September 30, 2015) that owns all of the outstanding capital stock of TDH HK Limited, our wholly-owned Hong Kong subsidiary (TDH HK). We also own all of the outstanding capital stock of TDH Foods Limited, another wholly-owned Hong Kong subsidiary, and holds a 100% interest in TDH Petfood LLC, a Nevada limited liability company. TDH HK, in turn, owns all of the outstanding capital stock of Qingdao Tiandihui Foodstuffs Co., Ltd., our operating subsidiary based in Qingdao City, Shandong Province, China, incorporated in April 2002 as a PRC limited liability company (Tiandihui). TDH Foods Limited owns 100% of the outstanding capital stock of Qingdao Tiandihui Pet Foodstuff Co., Ltd, with its wholly-owned subsidiary of Qingdao Tiandihui Foodstuff Sales Co., Ltd. We conduct all of our business through Tiandihui, Tiandihui Pet Foodstuff and Tiandihui Foodstuff Sales which has one wholly-owned subsidiary: Beijing Chongai Jiujiu Cultural Communication Co., Ltd. (incorporated on March 3, 2011). In addition, TDH Group BVBA, a Belgium company is wholly-owned by TDH Holdings, Inc.; TDH JAPAN, a Japanese company is wholly-owned by TDH Holdings, Inc. TDH Japan has been deregistered and dissolved in February 2021.

Our principal executive office is located at Qingdao Tiandihui Foodstuffs Co. Ltd., 2521 Tiejueshan Road, Huangdao District, Qingdao, Shandong Province, PRC. Our telephone number is +86 532-8615-7918. Our website address is www.tiandihui.com. The information on our website is not part of this Annual Report.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this annual filing. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this annual filing.

Recent Developments

Impact of COVID-19 Pandemic on the Company’s operations

In December 2019, a novel strain of coronavirus was reported in Wuhan, China. On March 11, 2020, the World Health Organization categorized it as a pandemic. In response to the COVID-19 outbreak, governments around the global have implemented measures such as lockdowns, travel restrictions, and closures of businesses and schools. As a result of the COVID-19 outbreak, we have experienced suspension of operations, interruption of supply chain and decline in sales orders by our customers. Our businesses, results of operations, financial position and cash flows were adversely affected in fiscal year 2020, including but not limited to material negative impact to our total revenues, slower collection of account receivables and significant disruptions of our supply chains. Although we resumed our operations in May 2020 and the COVID-19 outbreak in China appears to have slowed down and most provinces and cities have resumed some business activities under the guidance and support of the government, a resurgence could negatively affect the execution of customer contracts, the collection of customer payments, or disruption of the Company’s supply chain. The continued uncertainties associated with COVID 19 may cause the revenue and cash flows to underperform in the next 12 months. The extent of the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the financial statement reporting date.

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Today, while our offices and manufacturing facilities remain open and business activities have fully resumed, we are closely monitoring all developments and are following the guidelines issued by local and national health authorities. We strive to accommodate and support our employees, while also maintaining our commitments to our customers. We expect the aforementioned negative impact will gradually mitigate in the future as the COVID-19 outbreak continues to become more controlled in China. Nevertheless, due to the uncertainty on future developments, which cannot be predicted with confidence at this time, we are not able to assess the overall or long-term effect the COVID-19 outbreak may have on our financial results and business operations.

We Are Currently Facing Challenges to Recover Our Production and Normal Business Operations and Resolve Existing Legal Proceedings

Due to the sharp rise in market price of raw materials, the lack of operational efficiency of our production facilities and our inability to make bank loan repayments upon maturity, we suspended our production and normal business operations and we were involved in certain legal proceedings in November 2019. The COVID-19 outbreak further disrupted our business activities from the beginning of 2020 up to May 2020 when we resumed business operations. These factors led to a significant decrease in our revenue by 93.6% or $11.8 million in 2020 as compared to 2019, and we suffered recurring net losses of approximately $0.87 million in 2020.

We had two manufacturing facilities with an aggregate production capacity of 5.4 ton per day as of December 31, 2020. One facility was owned by us and the other one was leased from a related party. The facility owned by us was frozen by the court as a result of our pending legal proceedings which led to our inability to sell, transfer or disposal of the facility but we can still use the production lines and facilities to manufacture our pet food products if we have sales orders from customers. Comparing with 2019, due to decreased sales orders as affected by COVID-19 and our recent challenges, our total production capacity decreased by 32.5% from 8.0 tons per day in 2019 to 5.4 tons per day as of the date of this filing.

The market for pet food is characterized by strong competition, evolving industry standards, fast change in customer preference, new product introductions, and evolving methods of developing and maintaining products. Our operating results depend on our ability to develop and introduce high quality new products and to maintain our customer base and sales network. If we fail to accurately predict our customers’ changing needs, our business could be harmed. In order to recover our business operations, we may need to commit significant resources, including monetary investments and developing new products before knowing for sure whether such investments will result in products the intended end users’ will accept. Similarly, our business could be harmed if we fail to develop or fail to develop in a timely fashion. In addition, our business could be adversely affected in periods surrounding the launch of new products if customers delay their purchasing decisions to evaluate the new product offerings. Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of necessary resources.

We face substantial challenges in our effort to resume normal business activities. Our future growth will place a significant strain on our sales and marketing capacities, administrative and operating infrastructure, manufacturing facilities and other resources. To effectively manage additional challenges brought on by the global spread of COVID-19 and re-establish ourselves as a going concern, we need to evaluate and identify suitable strategic or acquisition opportunities, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of acquired businesses and companies, resolve the substantial litigation and judgements to which we are subject and raise substantial capital. There may be particular complexities, regulatory or otherwise, associated with our expansion into new markets, and our strategies may not succeed beyond our current markets. If we are unable to effectively address these challenges, our ability to execute acquisitions as a component of our long-term strategy will be impaired, which could have an adverse effect on our growth or our ability to function as a going concern. We also need to expand our customer base, refine our operational, financial and management controls and reporting systems and procedures. If we fail to efficiently manage this expansion of our business, our costs and expenses may increase more than anticipated and we may not successfully attract a sufficient number of customers in a cost-effective manner, respond to competitive challenges, or otherwise execute our business plans. In addition, we may, as part of carrying out our growth strategies, adopt new initiatives to implement new pricing models and strategies. We cannot assure you that these initiatives may achieve the anticipated results.

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Our ability to effectively implement our strategies and manage future growth of our business will depend on a number of factors, including our ability to: (i) effectively market our products to potential customers; (ii) develop new products to appeal to existing customers;(iii) effectively recruit, train and motivate a large number of new employees; (iv) improve our operational, financial and management controls and efficiencies; (v) protect and further develop our intellectual property rights; (vi) raise substantial amounts of capital; and (vii) make sound business decisions. These activities require significant capital expenditures and investment of valuable management and financial resources, and our growth will continue to place significant demands on our management. There are no guarantees that we will be able to effectively manage any future growth in an efficient, cost-effective and timely manner, or at all. If we do not effectively manage the growth of our business and operations, our reputation, results of operations and overall business and prospects, and our ability to continue as a going concern could be negatively impacted.

As of December 31, 2020, we had the following pending lawsuits, legal claims, proceedings and arbitrations:

| ● | Legal claims by vendors and lenders. Since November 2019, the Company has been a subject of 57 lawsuits by its raw material supplies, printing and packaging supplies, transportation companies and other vendors. The claims raised in these lawsuits pertain to the Company’s non-payment of various invoices for supplier and vendor services rendered, with related interest and costs. As of the date of this report, in 44 cases, the creditors have reached civil conciliation letters with our company, and in 9 cases, the court has issued civil judgments. For the remaining 4 cases, the plaintiffs withdrew the lawsuit because of lack of evidence. The mediation and judgment involved total claims of RMB13.86 million (USD$2.12 million). Such liabilities have been accrued and reflected in the consolidated financial statements for the year ended December 31, 2020. On March 13, 2021, a land use right and a factory building on the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million). We plan to use $1.3 million of the auction proceeds to partially settle the legal claims with some of the vendors and also seek other possible mediation plan to further settle the legal claims with vendors. As of the date of this filing, the settlement with vendors is still in progress and we anticipate to reach agreements with the vendors soon.

On December 2, 2019, Qingdao Lingang Real Estate Co., Ltd. (“QLRE”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The Company entered into a loan agreement with QLRE in 2018 and borrowed RMB20 million (USD3.18 million) from QLRE in connection with purchase of a factory. The loan was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. The Company failed to make repayment to QLRE on time. On March 4, 2020, the Court ordered the Company to repay to QLRE the loan principal of RMB20 million plus interest of RMB 550,000 accrued as of October 31, 2019. It also directed that the payment be made within 10 business days after the court ruling takes effect, and that the Company pay interest at the rate of 2% per month for the period from the date of November 1, 2019 to the date of full discharge of the debt. If the debt is not repaid within the required timeframe, interest shall be doubled from the effective date of court order until the date of full discharge of the debt. The order further provides that Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for clearing the debts, and that the Company and Rongfeng Cui shall jointly bear the litigation fee of RMB77,000 (USD$11,933). As of December 31, 2020 and as of the date of this filing, we have not made the loan repayment to QLRE. Although we anticipate settling the liabilities with QLRE during 2021, we cannot predict and determine when or if a settlement will occur. If we fail to settle the obligations, there is a potential substantial risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

On January 15, 2020, China Construction Bank (“CCB”), initiated a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The plaintiff alleged that it executed a loan agreement with the Company in the amount of RMB19.93 million (USD3.08 million) for the purchase of manufacturing facility and the associated land use right located at Lingang Economic Development Zone, Huangdao District, Qingdao, Shandong Province, People’s Republic of China. Rongfeng Cui and his wife, Yanjuan Wang, co-signed for this loan as personal guarantors subject to joint and several liability in connection with the loan. The loan with CCB was guaranteed by Rongfeng Cui and Yanjuan Wang, and secured by a pledge of the aforementioned manufacturing facilities and associated land use right. On April 14, 2020, the Court has ruled that the Company must repay RMB19.93 million (USD3.25 million) of principal and accrued interest to CCB, ordered the sale of the mortgaged property and ruled that Rongfeng Cui and Yanjuan Wang must bear joint and several liability for the payment. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million), of which, $3,192,827 (RMB21.14 million) has been used to repay loan principal and accrued interest to CCB. The repayment has been completed as of the date of this filing.

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On November 11, 2019, Shanghai Pudong Development Bank Qingdao Branch(“SPDB”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB to borrow an aggregate of RMB4.85 million (USD0.75 million) from SPDB for working capital purpose. The Company failed to repay the debt upon maturity. The borrowing from SPDB was guaranteed by Rongfeng Cui and Yanjuan Wang, and was secured by a pledge of a land use right and real property of Saike and real property of Rongfeng Cui and Yanjuan Wang. The Company failed to make repayment to SPDB on time. On October 24, 2020, the court has orderd the Company to repay to SPDB the principal and interest at the annual interest rate of 18.25%. The payment was reqiured to be made within 10 business days after the effective date of thecourt ruling. The order also provides that if the debt is not paid within the required timeframe, interest shall be doubled from the effective date of court order until the date of full discharge of the debt, that the Company shall bear the litigation fees of RMB156,880 (USD 24,312), that Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for satisfying the debts, and that if the court decides to auction the pledged land use right and real properties, SPDB shall have the priority right of the repayment from the auction proceeds. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to SPDB. Although we anticipate settling the liabilities with SPDB during 2021, we cannot predict and determine when or if a settlement will occur. If we fail to settle the obligations, there is a potential substantial risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

On December 10, 2019, Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), initiated a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB for bank acceptance draft and Gaochuang executed the guarantee of SPDB bank acceptance deposit on behalf of the Company in the amount of RMB1.2 million (USD0.19 million). The Company failed to repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang upon the bank acceptance draft maturity date. The deposit made by Gaochuang was guaranteed by certain of the Company’s fixed assets and patent. Saike, Rongfeng Cui and Yanjuan Wang are also subject to joint and several responsibilities. On December 29, 2020, the court ruled that, (i) the Company must repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang and the interest at the annual interest rate of 4.15%. The payment should be made within 10 business days after the court ruling takes effect. If the debt is not paid within the required timeframe, interest shall be doubled from the date the court order takes effect until the date of full discharge of the debt. The court order requiers the Company to bear the litigation fees of RMB83,127(USD 12,882) and provides that if the court decides to auction the pledged fixed assets and patent, Gaochuang shall have the priority right of the repayment from the auction proceeds. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Gaochuang. Although we anticipate settling the liabilities with Gaochuang during 2021, we cannot predict and determine when or if a settlement will occur. If we fail to settle the obligations, there is a potential substantial risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

On May 6, 2020, the Postal Savings Bank of China Limited Weihai Road Sub-branch of Qingdao North District (hereinafter referred to as Postal Savings) filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui and Yanjuan Wang. The Company entered into two loan agreements with Postal Savings in 2018 and 2019, respectively, and borrowed RMB9.9 million ($1.53 million) in aggregate. The loans are guaranteed by Rongfeng Cui and Yanjuan Wang, pledged by a real property of the Company and a real property of Rongfeng Cui. The Company failed to make repayment to Postal Savings on time. In June 2020, the court ruled that, i) the Company must repay to Postal Savings the principal and interest under the loan, ii) the Company to bear the litigation fees incurred by Postal Savings, iii) if the court decide to auction the pledged real properties, Postal Savings shall have the priority right of the repayment from the auction proceeds and iv) Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for clearing the debts. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Postal Savings. Although we anticipate settling the liabilities with Postal Savings during 2021, we cannot predict and determine when or if a settlement will occur. If we fail to settle the obligations, there is a potential substantial risk that the Company and/or Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

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| ● | Labor arbitration claims by former employees. Due to decreased business scale and the impact of COVID-19, the Company dismissed certain employees in 2019 and 2020 and only intends to maintain 54 full-time employees. As a result of the employee layoffs, certain of the Company’s former employees commenced arbitration proceedings against the Company under applicable labor rules and standards, claiming, among others, lost wages, severance payments and/or social security obligations totaling RMB3.68 million (USD0.56 million). As of the reporting date, there were 98 labor arbitrations, of which 6 cases has been settled and the trial court has issued decisions on the remaining 92 cases. The Company accrued approximately $0.4 million contingent liabilities in other current liabilities on the consolidated balance sheet as of December 31, 2019 and recognized contingent losses of approximately $0.4 million for the year ended December 31, 2019. Upon the issuance of rulings in these cases, the Company further accrued approximately $0.1 million wage and/or severance payables in other current liabilities on the consolidated balance sheet as of December 31, 2020 and recognized losses of approximately $0.1 million for the year ended December 31, 2020. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were actioned by the court for $5,098,461 (RMB 33.14 million), we plan to use $0.56 million auction proceeds to settle the labor arbitration cases with our former employees.

Nasdaq Compliance Confirmation and a Panel Monitor

On October 29, 2019, the Company received Nasdaq confirmation of the Company’s regaining technical compliance with the minimum stockholders’ equity rule and with other applicable requirements as set forth in the Panel’s decision following an oral hearing in August 2019. In connection with this confirmation, the Nasdaq Panel imposes a Panel Monitor under Listing Rule 5815(d)(4)(A) until October 30, 2020 for the purposes of monitoring the Company’s continued compliance with the stockholders’ equity requirement. The decision provided that if and to the extent the Company’s stockholders’ equity fell below $2.5 million and the Company did not qualify for listing under an alternative to the stockholders’ equity rule, the Panel (or a newly convened Panel if the initial Panel is unavailable) would promptly conduct a hearing with respect to this deficiency, and the Company’s securities could be delisted from Nasdaq. During the monitoring period, the Company was obligated to notify the Panel, in writing, in the event its stockholders’ equity fell below $2.5 million for any reason, or if the Company otherwise fell out of compliance with any other applicable listing requirement. In the event that the Company failed to comply with any other requirement for continued listing during the monitoring period, the Company would have been provided written notice of the deficiency and an opportunity to present a definitive plan to regain compliance to the Panel. The Panel would thereafter render a determination with respect to the Company’s continued listing on Nasdaq. On November 12, 2020, the Company, was informed that, following a 12-month compliance monitoring period under a Panel Monitor pursuant to a Compliance with Monitor letter dated October 29, 2019, the Company was currently in compliance with applicable Nasdaq Listing Rules, and the Panel has determined to continue the listing of the Company’s securities on The Nasdaq Stock Market. There is no assurance that the Company will remain in compliance with the continued listing criteria. If it fails to remain in compliance its securities could be delisted. If the Company is delisted from Nasdaq, its common shares may be traded over-the-counter on the OTC Bulletin Board or in the “pink sheets” if one or more market makers seeks and obtains approval by the Financial Industry Regulatory Authority to continue quoting in the Company’s common shares.

Recent sales of securities

On December 2, 2020, the Company entered into subscription agreements with four accredited investors for the sale of 9,100,000 of the Company’s common shares at the price $0.30 per share for the gross proceeds of approximately $2.73 million. In April 2021, a total of 9,100,000 common shares were issued to four investors with cash proceeds of $2,730,000. The shares were sold without registration under the Securities Act of 1933 (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering. The Company’s intention was to use the proceeds of this offering for working capital and general working purposes. There were no discounts or brokerage fees associated with this offering. The Company received the $2.73 million proceeds in April 2021.

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Overview

We specialize in the development, manufacturing and sale of a variety of pet food products under multiple brands that are well-established and recognizable by consumers in the PRC, Asia, Europe and North America. We produce and offer more than 200 different products to our customers. We adjust our production level based on sales orders received from customers. Our current product offerings are classified into 6 product categories: pet chews, dried pet snacks, wet canned pet food, dental health snacks, and baked pet biscuits (as well as non-food items like dog leashes, pet toys, etc.), and the other pet food products. We sell our products to customers in the PRC, Asia, Europe and North America.

Product research and development plays an important role in our business. Our production processes are developed based upon a number of in-house developed technologies. The primary focus of such technologies is driven by customer needs, which allows us to maintain an effective market-oriented research and development model. We have been granted certain invention and utility model patents. Because of our in-depth research and development efforts and our proprietary recipes, cooking techniques and packaging developed over the last decade, we are able to provide high quality pet food products to consumers throughout the world.

We have a standard construction in accordance with the high quality food production factory, the factory is located in convenient transportation of the coastal city - Qingdao city, Shandong province.

We also maintain an office in Qingdao with 2 well-trained, multilingual employees to address customer service matters arising from our sales in the PRC and abroad.

As a result of our suspension of our production in November 2019 which was further negatively impacted by the COVID-19 outbreak and spread in 2020, we have reduced our number of employees in response to current challenges. As of December 31, 2020, we have employed approximately 54 full-time employees at our facilities. With the exception of our subsidiary’ offices located in Beijing, all of our production, administration, sales/marketing and customer service facilities covering the PRC and overseas markets are located in Shandong Province, PRC.

Our current workforce consists of employees who are knowledgeable about animal nutrition, and employees with strong sales and marketing skills. Our management team is comprised of an experienced group of executives, many of whom have years of operating experience in their respective departments.

Starting from 2013, we have been utilizing an online sale and multi-brand, multi-store brand sale strategies to expand our market coverage. We use Tmall.com, JD.com and 1688 as our marketing platforms and establish a comprehensive network of various brand shops in China.

Our sales and marketing team consists of an original design manufacturer (ODM) domestic (PRC) marketing group. Our business model relies on our strength to provide our customers with personalized and customized products. As a part of our ODM production process, we continuously accumulate a large amount of market information about our customers, in the PRC and abroad, which helps us to make appropriate product offering decision.

We operate our business in China through our wholly-owned subsidiaries, Tiandihui, Tiandihui Pet Foodstuffs, Tiandihui Foodstuffs Sales and Chongai Jiujiu.

Revenues

We derive our revenues from wholesale and retail of our pet food products, mainly through our overseas and domestic distribution agents, and online sales through various electronic commerce platforms. Revenue consists of the invoiced value for the sales, net of value-added tax (“VAT”), business tax, applicable local government levies and returns.

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The following factors affect the revenues we derive from our operations.

COVID-19 Impact: Our business operations were largely negatively affected by the outbreak of COVID-19 pandemic. 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 the COVID-19 outbreak, we suspended our factory and operations since late 2019 to May 2020, during which time we had limited support from our employees, delayed access to raw material supplies and were unable to deliver products to customers on a timely basis. As a result, our business was negatively impacted and we experienced delay in fulfilling the orders of our customers. Our revenue was approximately 93.6% lower, or approximately $11.8 million lower, in fiscal year 2020 as compared to fiscal year 2019, because of our reduced business activities and delayed fulfillment of customer sales orders as negatively affected by the COVID-19 outbreak and spread. Although we resumed our operations in May, 2020, a resurgence could negatively affect the execution of customer contracts, the collection of customer payments, or disrupt our supply chain, and the continued uncertainties associated with COVID 19 may cause our revenue and cash flows to underperform in the next 12 months. The extent of the future impact of COVID-19 is still uncertain as of the date of this report.

Our ability to resolve our current working capital shortage, debt burden and limited production capacity to support our future revenue growth. We are currently facing challenges to settle defaulted loan payments to various financial institutions mentioned above and resolve our working capital shortage. Our manufacturing capacity also decreased from 8.0 tons per day in 2019 to 5.4 tons per day as of the date of this filing and one of the our manufacturing facilities was frozen by the court order. Although we still use this frozen manufacturing facility to produce pet food products whenever we receive customer orders, we cannot assure whether the court will take additional actions or not to auction this facility and request us to use the auction proceeds to repay our debt. Our future market expansion, business recovery and revenue growth may need significant amount of capital expenditure. If we cannot resolve current working capital shortage, debt burden and limited production capacity, we may not be able to support our future revenue growth.

Our ability to maintain our competitive advantages. We currently provide more than 200 different variety of pet snack products to our targeted customers to satisfy their needs. We focus on the needs of the market and provide our customers with personalized and customized products. However, the market conditions and consumer preferences change rapidly. If we fail to maintain our reputation and competitive advantages, customers demand for our products could decline.

Competition. The market of pet food is very competitive. The number of pet food manufacturers is increasing due to the growth of actual and predicted demand for pet food products and the relatively low barriers to entry. Moreover, Our PRC market is characterized by price competition, product quality and the presence of a number of medium to large companies. We are subject to pricing pressure and may experience a decline in average selling prices for our products. We compete with a significant number of companies of varying sizes, including divisions or subsidiaries of larger companies who may have greater financial resources and larger customer bases than we have. Some of our current or potential competitors may have significantly greater financial resources and expertise in research and development, manufacturing, and marketing pet products than we do, they may also be able to identify and adapt to changes in consumer preferences more quickly than us, these factors could result in our competitors establishing a strong market position before our products are able to enter the potential market. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete. If we do not compete effectively, our operating results could be harmed.

Some of our competitors have established more prominent market positions. We believe that our major competitors include the following companies: Yantai China Pet Foods Co., Ltd., Wenzhou Peidi Pet Products Co., Ltd., Gambol Pet Group, and Guaibao Pet Food Group Co., Ltd.

Expansion of E-commerce sales. With the popularization and development of Internet, E-commerce accounts for an increasing proportion in the industry. If we fail to expand our E-commerce business, our total revenue could continue to decrease. E-commerce sales in 2020, 2019 and 2018 were $16,708, $83,779 and $3,800,668, accounting for 2%, 1% and 16% of total revenue, respectively. Although we suspended our e-commerce business in 2019, we are planning to recommence our domestic e-commerce business in the near future.

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Loss of key personnel. Our revenue was derived from our competitive advantages in our products. We rely heavily on the expertise and leadership of our senior management to maintain our core competence. The loss of the service of any of our key personnel could adversely affect our business. We have obtained non-compete agreements and confidentiality agreements from our scientist and technique staffs in our research and development and manufacturing departments.

Potential trade protection action. Trade protectionism actions in the United States, the European Union or elsewhere around the world could result in additional duties and tariffs on the importation of pet food from China to each respective national market. Any determination of duties and tariffs against importation of our modules into the United States and Europe could adversely affect our ability to sell products in these countries that could impact our sales, business operations, competitiveness, and profitability.

Group boycott initiated by the local pet food association. We continue to rely on the local agents to expand our sales in overseas market. It has been our experience that pet food associations in certain countries are influential in local markets. It is possible that these associations may boycott our pet snack products for the reasons such as low prices and other market specific concerns. If and to the extent that happens, our revenues will be adversely affected.

Macro-economic conditions. Our business, financial condition and results of operations may be materially adversely affected by a challenging economic climate, including adverse changes in interest rates, volatile commodity markets and inflation, contraction in the availability of credit in the market and reductions in consumer spending. A macroeconomic downturn, which decreases the disposable personal income and reduces the need for luxury goods, may contribute to decreased sales of our pet food products. Conversely, the economic growth may result in more sales of our pet food products.

Costs and Expenses

Our costs and expenses primarily include the following:

Costs of revenues. Cost of revenues consists primarily of direct raw materials, direct payroll of workshop staff, utility and supply costs consumed in the manufacturing process, manufacturing labor, depreciation expense and overhead expenses necessary to manufacture finished goods as well as distribution costs such as inbound freight charges.

Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of compensation expense for our corporate staff in supporting departments, communication costs, gasoline, shipping and handling cost, welfare expenses, education expenses, professional fees (including consulting, audit and legal fees), travel and business hospitality expenses.

Income tax expense. We account for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns.

The following factors affect our cost of revenues and expense.

Price fluctuation of raw materials. The raw materials purchase costs significantly impact our cost of goods sold. Any significant fluctuation of the market price of raw materials may negatively affect our operating results. Even if our current materials supply is relatively stable, we could be impacted by material price fluctuation in coming years.

Our ability to resolve our current poor credit resulting from our legal proceedings with our vendors and suppliers. Our cost of revenues is impacted by whether we can negotiate favorable purchase price and credit terms with our suppliers and vendors, including but not limit to raw material supplies, printing and packaging supplies, transportation companies and other vendors. Since November 2019, we have been a subject of 57 lawsuits by our suppliers and vendors. Although we are currently seeking to settle the legal claims with these suppliers and vendors, there can be no assurance that we will be successful. If we fail to resolve these pending legal proceedings with our suppliers and vendors and enhance our credit, our reputation may be damaged and we may not be able to negotiate favorable terms with our suppliers and vendors in the future and our operating cost may be increased.

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Prevailing salary levels. Our cost of revenues is impacted by prevailing salary levels. Although we have not been subject to significant wage inflation in China, a significant increase in the market rate for wages could harm our operating results and our operating margin. Our ability to attract, retain, and expand our senior management and our professional and technical staff is an important factor in determining our future success. The market for qualified scientists and researchers is competitive. From time to time, it may be difficult to attract and retain qualified individuals with the required expertise at a fair wage. An increase in compensation of our scientists and researchers may increase our operating cost.

Depreciation. Our depreciation expenses are mainly driven by the net value of machinery equipment, motor vehicles, buildings and other items. Depreciation of property, plant and equipment is calculated based on cost, less their estimated residual value, if any, using the straight-line method over estimated useful life from 5 years to 50 years. Any change of the depreciation accounting policy or impairment of our property may affect our operating results.

Shipping and handling expense. Our shipping and handling expense includes domestic freight, oversea freight, domestic express shipping fee. In order to reduce shipping and handling cost, we are trying to negotiate with and establish closer cooperation with several shipping companies providing express shipping services in order to lock favorable fee rates and reduce the domestic express fees.

Research and Development expense. Due to the uncertainty for the result of our R&D activities, we expensed all of our R&D expenditure. The R&D expense for the years ended December 31, 2020, 2019 and 2018 was $0, $0 and $1,062,582, respectively. Although we don’t have spending R&D in 2020, looking forward, in order to diversify our product offering to meet customer demands in the future, we may incur additional R&D expenses in the coming years to maintain our competitive advantage.

Results of Operations

For the years ended December 31, 2020, 2019 and 2018

|  | December 31 |  |  | 2020 vs |  |  | 2019 vs |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
|  | $ |  |  | $ |  |  | $ |  |  |  |  |  |  |
Net revenues |  |  | 815,225 |  |  |  | 12,455,414 |  |  |  | 22,154,506 |  |  |  | -93.45 | % |  |  | -43.78 | %
Net revenues-related parties |  |  | - |  |  |  | 192,841 |  |  |  | 1,519,531 |  |  |  | -100 | % |  |  | -87.31 | %
Cost of revenues |  |  | 857,060 |  |  |  | 13,992,499 |  |  |  | 26,278,300 |  |  |  | -93.87 | % |  |  | -46.75 | %
Cost of revenues-related parties |  |  | - |  |  |  | 178,636 |  |  |  | 1,448,533 |  |  |  | -100 | % |  |  | -87.67 | %
Gross loss |  |  | (41,835 | ) |  |  | (1,522,880 | ) |  |  | (4,052,796 | ) |  |  | -97.25 | % |  |  | -62.42 | %
Gross margin |  |  | -5.13 | % |  |  | -12.04 | % |  |  | -17.12 | % |  |  | N/A |  |  |  | N/A |
Selling expense |  |  | 117,993 |  |  |  | 920,237 |  |  |  | 4,535,945 |  |  |  | -87.18 | % |  |  | -79.71 | %
R&D expense |  |  | - |  |  |  | - |  |  |  | 1,062,582 |  |  |  | N/A |  |  |  | -100 | %
General and administrative expenses |  |  | 1,766,109 |  |  |  | 3,702,035 |  |  |  | 2,792,858 |  |  |  | -52.29 | % |  |  | 32.55 | %
Impairment of long-lived assets other than goodwill |  |  | - |  |  |  | 813,344 |  |  |  | - |  |  |  | -100 | % |  |  | 100 | %
Impairment of goodwill |  |  | - |  |  |  | - |  |  |  | 1,599,591 |  |  |  | N/A |  |  |  | -100 | %
Loss from operations |  |  | (1,925,937 | ) |  |  | (6,958,496 | ) |  |  | (14,043,772 | ) |  |  | -72.32 | % |  |  | -50.45 | %

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Revenues.

Our revenue was $815,225, $12,648,255 and $23,674,037 for the years ended December 31, 2020, 2019 and 2018, respectively. Our total revenue decreased by $11,833,030 or 93.55% when comparing 2020 to 2019, and also decreased by $11,025,782, or 46.57% when comparing 2019 to 2018.

The following table displays our revenue by different marketing channels.

|  | December 31 |  |  | 2020 vs |  |  | 2019 vs |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
|  | $ |  |  | $ |  |  | $ |  |  |  |  |  |  |
Oversea sales |  |  | 226,385 |  |  |  | 9,995,136 |  |  |  | 15,832,362 |  |  |  | -98 | % |  |  | -37 | %
Domestic sales |  |  | 574,921 |  |  |  | 2,711,445 |  |  |  | 4,102,457 |  |  |  | -79 | % |  |  | -34 | %
Electronic commerce sales |  |  | 16,708 |  |  |  | 83,779 |  |  |  | 3,800,668 |  |  |  | -80 | % |  |  | -98 | %
Less: Sale tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | ) |  |  | -98 | % |  |  | 131 | %
Total revenues |  |  | 815,225 |  |  |  | 12,648,255 |  |  |  | 23,674,037 |  |  |  | -94 | % |  |  | -47 | %

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For the year ended December 31, 2020, our overseas sales, domestic sales and E-commerce sales decreased by $9,768,751, $2,136,524 and $67,071, respectively, compared with the year ended December 31, 2019.

The decrease of revenue in 2020 was mainly due to the following facts: (1) decrease in sales orders due to our uncompetitive sales price which became less attractive to our customers; (2) partially suspension of our overseas E-commerce business due to the estimated gross loss; (3) suspension of our production and operations in November 2019 due to our default on loan repayments to financial institutions, claims from our suppliers and creditors and labor arbitration derived from our reduction in the number of employees. The COVID-19 outbreak and spread further caused disruption in our supply chain, transportation and our sales activities from the beginning of 2020 to May 2020. As a result, we had the inability to fulfill customer orders on a timely manner and we received reduced sales orders from our customers and our sales volume significantly decreased in 2020 as compared to 2019.

As a result, our total revenues for the fiscal year 2020 decreased significantly as compared with the fiscal year 2019.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For the year ended December 31, 2019, our overseas sales, domestic sales and E-commerce sales decreased by $5,837,226, $1,391,012 and $3,716,889, respectively, compared with the year ended December 31, 2018.

The decrease of revenue in 2019 was mainly due to these three facts: (1) decrease in sales orders due to our uncompetitive sales price; (2) partially suspension of our overseas E-commerce business due to the estimated gross loss; (3) temporary suspension of our manufacturing activities in 2019 to improve our operational deficiency. As a result, we received reduced sales orders from our customers and our sales volume significantly decreased in 2019 as compared to 2018.

Notwithstanding operational improvement during the period from January to October 2019, we determined to temporarily suspend our production mainly for the following reasons:(1) substantial increase in the prices of major inputs and raw materials which reduced our competitive strength and profitability; (2) lack of operational efficiency at the Company’s production facilities; and (3) some of our outstanding indebtedness cannot be renewed with the lenders upon loan maturity, which may negatively impact our capital sources to be used to support our continuous operations.

As a result, our total revenues for the fiscal year 2019 decreased dramatically as compared with the fiscal year 2018.

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The revenue generated from different product lines are set forth as following:

|  | December 31 |  |  | 2020 vs |  |  | 2019 vs |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
|  | $ |  |  | $ |  |  | $ |  |  |  |  |  |  |
Pet chews |  |  | 59,096 |  |  |  | 6,469,755 |  |  |  | 6,271,777 |  |  |  | -99 | % |  |  | 3 | %
Dried pet snacks |  |  | 317,392 |  |  |  | 4,617,742 |  |  |  | 13,611,010 |  |  |  | -93 | % |  |  | -66 | %
Wet canned pet food |  |  | 84,117 |  |  |  | 1,310,001 |  |  |  | 2,782,382 |  |  |  | -94 | % |  |  | -53 | %
Dental health snacks |  |  | 19,915 |  |  |  | 305,452 |  |  |  | 495,581 |  |  |  | -93 | % |  |  | -38 | %
Baked pet biscuits |  |  | 3,132 |  |  |  | 87,410 |  |  |  | 95,169 |  |  |  | -96 | % |  |  | -8 | %
Others |  |  | 334,362 |  |  |  | - |  |  |  | 479,568 |  |  |  | 100 | % |  |  | -100 | %
Less: Sale tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | ) |  |  | -98 | % |  |  | 131 | %
Total revenues |  |  | 815,225 |  |  |  | 12,648,255 |  |  |  | 23,674,037 |  |  |  | -94 | % |  |  | -47 | %

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Our total revenue decreased by $11,833,030 or 94% when comparing 2020 to 2019, among which, revenue generated from pet chews decreased by $6,410,659 or 99%, revenue from dried pet snacks decreased by $4,300,350 or 93%, revenue generated from wet canned pet foods decreased by $1,225,884 or 94%, from the year ended December 31, 2019 to the year ended December 31, 2020, respectively. In addition, revenue generated from dental health snacks decreased by $285,537 or 93%, from the year ended December 31, 2019 to the year ended December 31, 2020. The decrease was primarily due to decreased sales orders received and decreased sales volumes as affected by the COVID-19 outbreak and spread, which caused the suspension of our factory and business operations until May 2020, and our inability to fulfill customer orders on a timely basis due to disruption of supply chain and logistics caused by the COVID, as well as decrease of sales order, and our unfavorable selling price which led to our products became less attractive to customers.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue generated from dried pet snacks decreased by $8,993,268 or 66%, from the year ended December 31, 2018 to the year ended December 31, 2019. Revenue generated from wet canned pet foods decreased by $1,472,381 or 53%, from the year ended December 31, 2018 to the year ended December 31, 2019. Revenue generated from dental health snacks decreased by $190,129 or 38%, from the year ended December 31, 2018 to the year ended December 31, 2019. The decrease was due to the rejection of certain unprofitable orders, suspension of our E-commerce business and suspension of our manufacturing activities from late October 2019.

The revenue generated from different countries are set forth as following:

|  | December 31 |  |  | 2020 vs |  |  | 2019 vs |
|  | 2020 |  |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
|  | $ |  |  | $ |  |  | $ |  |  |  |  |  |  |
South Korea |  |  | 34,378 |  |  |  | 1,335,791 |  |  |  | 2,870,998 |  |  |  | -97 | % |  |  | -53 | %
China |  |  | 713,257 |  |  |  | 2,662,247 |  |  |  | 6,569,382 |  |  |  | -73 | % |  |  | -59 | %
United Kingdom |  |  | - |  |  |  | 1,573,546 |  |  |  | 2,415,043 |  |  |  | -100 | % |  |  | -35 | %
Germany |  |  | - |  |  |  | 2,062,110 |  |  |  | 2,522,149 |  |  |  | -100 | % |  |  | -18 | %
Other countries |  |  | 70,379 |  |  |  | 5,156,666 |  |  |  | 9,357,915 |  |  |  | -99 | % |  |  | -45 | %
Less: Sale tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | ) |  |  | -98 | % |  |  | 131 | %
Total revenues |  |  | 815,225 |  |  |  | 12,648,255 |  |  |  | 23,674,037 |  |  |  | -94 | % |  |  | -47 | %

“Other countries” is comprised of all countries whose revenues, individually, were less than 10% of the Company’s revenues.

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Overall, our sales to China domestic market and overseas market both significantly decreased in 2020 as compared to 2019, mainly due to decreased sales volume of our products as affected by the negative impact of COVID-19 (coronavirus) as discussed above, as well as decrease in sales orders, and our unfavorable selling price.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Overall, our sales to most of the overseas countries significantly decreased in 2019 as compared to 2018. The decrease was due to the rejection of certain unprofitable orders, suspension of our E-commerce business and suspension of our manufacturing activities from late October 2019.

Cost of revenues

Our cost of revenues is primarily comprised of the cost of our raw materials, labor and factory overhead. Our cost of revenues, decreased by $13,314,075 or 93.95% for the year ended December 31, 2020 as compared to the year ended December 31, 2019. This decrease in cost of revenues was in line with the 93.55% decrease in our total net revenue for the year ended December 31, 2020 when sales orders and sales volume decreased. Our cost of revenues as a percentage of revenue was 105.13% and 112.04% for the years ended December 31, 2020, and 2019, respectively.

Our cost of revenues, decreased by $13,555,698 or 48.89% for the year ended December 31, 2019 as compared to the year ended December 31, 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. Our cost of revenues as a percentage of revenue was 112.04% and 117.12% for the years ended December 31, 2019, and 2018, respectively.

Gross margin

Our gross margin was negative 5.13% for the year ended December 31, 2020, compared with negative gross margin of 12.04% for the year ended December 31, 2019. The improvement in gross margin was mainly due to change in sales mix and more high margin products being sold in 2020 as compared to 2019.

Our gross margin was negative 12.04% for the year ended December 31, 2019, compared with negative gross margin of 17.12% for the year ended December 31, 2018. The improvement in gross margin was mainly due to the rejection of certain unprofitable orders and the slightly improvement in our cost management.

Operating expenses

Operating expenses were $1,884,102, and $5,435,616 for the years ended December 31, 2020 and 2019, respectively, a decrease of $3,551,514, or 65.34%. The ratio of operating expenses as a percentage of revenue increased from 42.98% for the year ended December 31, 2019 to 231.11% for the year ended December 31, 2020.

Selling expense was $117,993 and $920,237 for the years ended December 31, 2020, and 2019, respectively, a decrease of $802,244 or 87.18%. The decrease in our selling expense was in line with our decreased revenue in 2020. As our revenue declined, our distribution costs, sales promotion and marketing campaign related costs and sales commission paid to our sales teams decreased in 2020 as compared to 2019.

General and administrative expenses was $1,766,109, and $3,702,035 for the years ended December 31, 2020 and 2019 respectively, representing a decrease of $1,935,926, or 52.29%. The main reason for the decrease was because we have cut-down number of employees as a result of our business strategy adjustment when our business scale reduced in 2020, as a result, our salary paid to employees, office expenses incurred and business consulting expenses all decreased in 2020 as compared to 2019.

Operating expenses were $5,435,616, and $9,990,976 for the years ended December 31, 2019 and 2018, respectively, a decrease of $4,555,360, or 45.59%. The ratio of operating expenses as a percentage of revenue increased from 42.20% for the year ended December 31, 2018 to 42.98% for the year ended December 31, 2019.

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Selling expense was $920,237 and $4,535,945 for the years ended December 31, 2019, and 2018, respectively, a decrease of $3,615,708 or negative 79.71%. The decrease in our selling expense was in line with our decreased revenue in 2019. As our revenue declined, our distribution costs, sales promotion and marketing campaign related costs and sales commission paid to our sales teams decreased in 2019 as compared to 2018.

General and administrative expenses was $3,702,035, and $2,792,858 for the years ended December 31, 2019 and 2018 respectively, representing an increase of $909,177, or 32.55%. 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.

Our research and development expense was $Nil, $Nil and $1,062,582 for the years ended December 31, 2020, 2019 and 2018, respectively. Although we cut expenses to reduce operating losses of the years ended December 31, 2020 and 2019, looking forward, in order to diversify our product offering to meet customer demands in the future, we may incur additional R&D expenses in the coming years to maintain our competitive advantage.

Impairment of long-lived assets other than goodwill was $0 and $813,344 for the year ended December 31, 2020, and 2019. In 2019, we reassessed our long-lived assets using on a forecast of the Company’s future performance, and accordingly recognized approximately $0.8 million impairment loss measured based on their fair value of the assets in the consolidated financial statements for the year ended December 31, 2019. There was no additional impairment loss for the year ended December 31, 2020.

Impairment of long-lived assets other than goodwill was $813,344, and $Nil for the year ended December 31, 2019, and 2018. Due to our continuous operating loss in 2019, we reassessed our long-lived assets using on a forecast of the Company’s future performance, and accordingly recognized approximately $0.8 million impairment loss measured based on their fair value of the assets in the consolidated financial statements for the year ended December 31, 2019.

Impairment of goodwill was $Nil, Nil and $1,599,591 for the years ended December 31, 2020, 2019 and 2018, respectively. In 2018, we took full impairment provision for the goodwill generated in connection with the acquisition of TDH JAPAN and TDH Group BVBA. There was no such goodwill impairment in 2020 and 2019.

Loss from operations.

Our loss from operations was $1,925,937 for the year ended December 31, 2020, while our loss from operations was $6,958,496 for the year ended December 31, 2019. Our operating loss as a percentage of total revenues was negative 236.25%, and negative 55.02% for the years ended December 31, 2020 and 2019, respectively. The continuous loss from operation was mainly due to decreased sales revenue.

Our loss from operations was $6,958,496 for the year ended December 31, 2019, while our loss from operations was $14,043,772 for the year ended December 31, 2018. Our operating loss as a percentage of total revenues was negative 55.02%, and negative 59.32% for the years ended December 31, 2019 and 2018, respectively. 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.

Income taxes expense (benefit).

Due to our continuous operating loss for the years ended December 31, 2020, 2019 and 2018, we reported minimal income tax benefit for the year ended December 31, 2020, and we did not report income tax provision for the years ended December 31, 2019 and 2018.

Net loss.

Our net loss was $874,668 or the year ended December 31, 2020, compared to the net loss of $8,625,427 for the year ended December 31, 2019. The decrease in our net loss was the combined result of improvement in gross margin and decrease in operating expenses as discussed above.

Our net loss was $8,625,427or the year ended December 31, 2019, compared to the net loss of $14,219,265 for the year ended December 31, 2018. The decrease in our net loss was the combined result of improvement in gross margin, decrease in operating expenses and temporary cessation of production from November 2019.

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Liquidity and Capital Resources

For the years ended December 31, 2020, 2019 and 2018

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

As reflected in our consolidated financial statements, our revenue decreased by approximately $11.83 million from approximately $12.65 million in 2019 to approximately $0.82 million in 2020. Net cash used in operating activities amounted to approximately $2.63 million for the year ended December 31, 2020. As of December 31, 2020, we had a working capital deficit of approximately $8.55 million as compared to working capital deficit of approximately $7.3 million as of December 31, 2019. In addition, starting from November 2019, we temporarily suspended our manufacturing activities due to operating inefficiency, the suspension our manufacturing activities led to reduced sales and operating cash flows, and consequently caused our inability to make the payments to settle vendor bills and repay the bank loans upon maturity. As a result, in late 2019, some of our vendors and several financial institutions initiated lawsuits against us for payment. Our inability to resolve these matters satisfactorily had material adverse effect on the Company’s financial condition 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 has been 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 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 decreased significantly. Furthermore, certain premises including factory building and warehouse have been frozen for a period of three years following a court order issued in April 2020. These facts raise substantial doubt about our ability to continue as a going concern for the next 12 months from the date of this report.

In assessing our liquidity, management monitors and analyzes our cash and cash equivalent, our ability to generate sufficient revenue sources in the future, and our operating and capital expenditure commitments. As of December 31, 2020, we had cash and cash equivalent and restricted cash of approximately $6.75 million. We also had short-term investment of approximately $3.1 million, which are highly liquid and can be covered into cash and used in our operations if needed. We also had an aggregate approximately $9.4 million loans (including approximately $8.4 million short-term loans and approximately $0.99 million short-term loans from related parties). For the legal proceedings as of December 31, 2019 regarding our delayed repayment of certain bank loans upon maturity as described above, in March and April 2020, we received court rulings to require us to make an aggregate RMB 54.54 million (approximately $8.35 million) to the financial institutions. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million), among which, $3,192,827 (RMB21.14 million) has been used to repay loan principal and accrued interest to CCB based on the court order. The repayment has been completed as of the date of this filing. We plan to use $0.56 million auction proceeds to settle labor arbitration cases with our former employees. For the loans payable to QLRF, SPDB, Gaochuang and Postal Savings, we have not made the repayment to settle the debts as of December 31, 2020 and as of the date of this filing. Although we anticipate to settle these liabilities within 2021, at this point, we cannot predict and determine the exact timing of the settlements. However, if we fail to reach the agreement with our creditors or fail to make loan repayment to financial institutions mentioned above, Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceedings.

Based on our current financial conditions, our cash balance and revenues generated from our business operations may not be currently sufficient and cannot be projected to cover our future operating expenses and meet our obligations as they become due for the next twelve months after the date that our financial statements are issued.

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Management’s plan to alleviate the substantial doubt about our ability to continue as a going concern include attempting to improve our business profitability, generating sufficient cash flow from our operations to meet our operating needs on a timely basis, and obtaining additional working capital funds through debt and equity financings in order to meet our anticipated cash requirements. We also plan to evaluate and identify suitable strategic or acquisition opportunities, complete such transactions on commercially favorable terms, or successfully integrate business operations, infrastructure and management philosophies of acquired businesses and companies. Given the operating difficulties and the COVID-19 outbreak, we resumed our business activities on May 18, 2020, with the support of the local government. We believe the negative impact of the COVID-19 coronavirus outbreak on our business to be temporary and our sales activities have begun to resume, which will help us to increase our sales in the near future. Due to the effects discussed above, to the extent that we experience an adverse operating environment, incur unanticipated capital expenditures, or if we decide to accelerate our growth, then substantial additional financing may be required. Currently, we are working to improve our liquidity and capital sources primarily through financial support from our principal shareholder and the exploration of debt or equity financing possibilities. In order to fully implement our business plan and sustain continued growth, we may also need to raise capital from outside investors. On December 2, 2020, we entered into subscription agreements with four accredited investors for the sale of 9,100,000 of the Company’s common shares at the price $0.30 per share for the gross proceeds of approximately $2.73 million. We received the $2.73 million proceeds in April 2021. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain additional funds as needed. At the present time, however, we do not have commitments of funds from any third party. No assurance can be given that additional financing, if required, would be available on favorable terms or at all. If we do not secure capital needed for our operations, we may have to temporarily suspend or to terminate our operations.

Based on above reasons, there is a substantial doubt about the Company’s ability to continue as a going concern for the next 12 months from the date of this filing.

During the year ended December 31, 2020, our cash used in operating activities was $2,628,255, cash provided by investing activities was $3,355,189, cash used in financing activities was $589,358, and had the positive effect of prevailing exchange rates on our cash of $106,910. During the year ended December 31, 2019, our cash used in operating activities was $5,626,618, cash provided by investing activities was $113,552, cash provided by financing activities was $9,520,716 and we had the negative effect of prevailing exchange rates on our cash of $ 203,577.

Net cash used in operating activities for the year ended December 31, 2020 totaled $2,628,255. The activities were mainly comprised of a net loss of $874,668, depreciation and amortization of $391,351, fair value change of short-term investments $2,120,241, inventory write-down of $42,241, bad debt provision $74,190, an increase in interest payable $1,065,277, an increase in net accounts receivable of $112,177, a decrease in net inventory of $201,730, an increase in prepayment and other current net asset $29,363, a decrease in other current liabilities of $866,962, and a decrease in account payable of $416,506.

Net cash used in operating activities for the year ended December 31, 2019 totaled $5,626,618. The activities were mainly comprised of a net loss of $8,625,427, depreciation and amortization of $571,528, impairment of long-lived assets other than goodwill of $813,344, inventory write-down of $518,119, bad debt provision $659,569, a decrease in net accounts receivable of $329,042, a decrease in account receivable- related parties of $306,301, a decrease in net inventory of $2,009,862, a decrease in prepayment and other current net asset 516,018, and offset by a decrease in notes payable of $1,046,257, and a decrease in account payable of $2,775,356.

Net cash provided by investing activities for the year ended December 31, 2020 totaled $3,355,189, primarily include purchase of short-term investments of $38,743,908, proceeds from sale of short-term investments of $42,146,183, and payments to acquire property, plant and equipment of $47,086.

Net cash provided by investing activities for the year ended December 31, 2019 totaled $113,552. The activities were primarily comprised of $233,747 proceeds from disposal of property, plant and equipment, disposal of subsidiaries of $83, collections from related parties of $1,282, and offset by $121,560 payment to purchase property and equipment.

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For the year ended December 31, 2020, net cash used in financing activities was $589,358, primarily include proceeds from borrowing of short-term loans of $107,829, borrowing of short term loan-related parties of $49,350, and repayment of short term loan of $746,437.

For the year ended December 31, 2019, net cash provided by financing activities was $9,520,716. We received these funds from borrowing of short term loans of $1,046,275, borrowing of short term loan-related parties of $4,791,403, and proceeds from shares subscription of $6,760,000 offset by repayment to related parties of $1,000, repayment of short term loan of $2,073,177 and repayments of short term loans to related parties of $1,080,947.

Loan facilities

In 2018, 2019 and 2020, we secured the following revolving lines of credit:

On August 10, 2016, we obtained a line of credit of approximately $705,676 (RMB 4,900,000) from Industrial & Commercial Bank of China - Qingdao Shinan Second Branch. The borrowing under the line of credit was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. Under the term of the loan documentation, the loan term commenced on the date the borrowed capital was transferred to the borrower and continued until the all principal and accrued interest thereon were repaid in full. On June 6, 2017, we drew down the full amount of this loan; the term of this loan is 15-day, with this loan bearing interest at approximately 120% of the prevailing PRC prime rate. On July 6, 2017, this loan was repaid in full. On July 12, 2017, we obtained a new line of credit of approximately $412,371 (RMB2,800,000) with the same lender. On July 14, 2017, we drew down the full amount of this loan. The loan maturity date is July 10, 2018 with annual interest rate of 5.22%. On July 9, 2018, this loan was repaid in full and the line of credit was recovered. On August 2, 2018, we drew down the full amount of this loan. The loan maturity date is July 16, 2019 with annual interest rate of 5.22%. In July 2019 this loan was repaid in full. The outstanding balance on this loan was $0 as of December 31, 2020.

On March 25, 2017, we obtained a line of credit of approximately $290,361 (RMB 2,000,000) from China Postal Savings Bank – Qingdao Weihai Road Sub Branch. The borrowing under the line of credit was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. Under the term of the loan documentation, the loan term commenced on the date the borrowed capital was transferred to the borrower and continued until the all principal and accrued interest thereon are repaid in full. On March 29, 2017, we drew down the full amount of this loan. The loan maturity date is March 28, 2018, bearing interest at approximately 140% of the prevailing PRC prime rate. On March 16, 2018, this loan was repaid in full and the line of credit is recovered. On March 21, 2018, we drew down the full amount of this loan. The loan maturity date is March 19, 2019 with annual interest rate of 6.96%. We made partial repayment of this loan during the year ended December 31, 2018 and the outstanding balance on this loan was approximately $147,000 (RMB 1,008,675) as of December 31, 2018. In 2019 we repaid the rest of the loan in full, and the outstanding balance on this loan was $0 as of December 31, 2020.

On November 23, 2017, we obtained a line of credit of approximately $614,779 (RMB 4,000,000) from China Postal Savings Bank – Qingdao Weihai Road Sub Branch (“CPSB”). The borrowing under the line of credit was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. Under the term of the loan documentation, the loan term commenced on the date the borrowed capital was transferred to the borrower and continued until the all principal and accrued interest thereon are repaid in full. On December 13, 2017, we drew down the full amount of this loan. The loan maturity date is December 12, 2018 with annual interest rate of 5.655%. On November 14, 2018, this loan was repaid in full and the line of credit is recovered. On November 19, 2018, we drew down the full amount of this loan. The loan maturity date is November 18, 2019 with annual interest rate of 5.22%. In 2019 we didn’t repay the loan when it came due, and the outstanding balance on this loan was approximately $608,893 (RMB 3,972,965) as of December 31, 2020. As of December 31, 2020, we were in default on the loan.

On April 29, 2019, we entered a line of credit of approximately $845,732 (RMB 5,900,000) from China Postal Savings Bank - Qingdao Branch. The borrowing under the line of credit was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. The term of this loan is one-year; the loan maturity date is April 17, 2020, with this loan bearing interest rate of 5.0025% at approximately 150% of the prevailing PRC prime rate. The outstanding balance of this loan was approximately $903,975 (RMB 5,898,347) as of December 31, 2020. As of December 31, 2020, we were in default on the loan.

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For our defaulted loans payable to Postal Savings, as of December 31, 2020 and as of the date of this filing, we have not made the loan repayment to Postal Savings. Although we anticipate to settling with Postal Savings within 2021, we cannot predict when or if settlement will occur. If we fail to settle the liabilities, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into a bankruptcy proceeding.

Our long-term future capital requirements will depend on many factors, including our level of revenue, the timing and extent of our spending to support the maintenance and growth of our operations, the expansion of our sales and the continued market acceptance of our products and projects. Compared to $7,624,061 short-term loans outstanding as of December 31, 2019, we had $8,391,323 short-term loans outstanding as of December 31, 2020.

We expect to incur additional costs associated with being a reporting company in the United States, primarily due to increased expenses that we incur to comply with the requirements of the Sarbanes-Oxley Act of 2002, as well as costs related to accounting and tax services, legal expenses and investor and stockholder-related expenses. These additional long-term expenses may require us to seek other sources of financing, such as additional borrowings or public or private equity or debt capital. The availability of these other sources of financing will depend upon our financial condition and results of operations as well as prevailing market conditions, and may not be available on terms reasonably acceptable to us or at all.

Regulatory Restrictions on Capital Injections

We are using proceeds from our initial public offering and private placement to fund our business. Accordingly, the following regulations have to be followed, regarding capital injections to foreign-invested enterprises.

Chinese regulations relating to investments in offshore companies by Chinese residents. SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Financing and Round-trip Investment through Offshore Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014. SAFE Circular 37 requires Chinese residents to register and update certain investments in companies incorporated outside of China with their local SAFE branch. SAFE also subsequently issued various guidance and rules regarding the implementation of SAFE Circular 37, which imposed obligations on Chinese subsidiaries of offshore companies to coordinate with and supervise any Chinese-resident beneficial owners of offshore entities in relation to the SAFE registration process.

We may not be aware of the identities of all of our beneficial owners who are Chinese residents. We do not have control over our beneficial owners and cannot assure you that all of our Chinese -resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are Chinese residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our Company who are Chinese residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our Chinese subsidiaries to fines and legal sanctions, which may be substantial. Failure to register may also limit our ability to contribute additional capital to our Chinese subsidiaries and limit our Chinese subsidiaries’ ability to distribute dividends to our Company. These risks may have a material adverse effect on our business, financial condition and results of operations.

China regulates loans to and direct investment in Chinese entities by offshore holding companies and there is governmental control of currency conversion. We are an offshore holding company conducting our operations in China through our wholly owned subsidiary Tiandihui. As an offshore holding company, we may make loans and additional contributions to Tiandihui subject to approval from government authorities.

Any loan to Tiandihui, which is treated as a foreign-invested enterprise under Chinese law, is subject to Chinese regulations and foreign exchange loan registrations. In January 2003, the China State Development and Reform Commission, SAFE and Ministry of Finance jointly promulgated the Circular on the Interim Provisions on the Management of Foreign Debts, or the Circular 28, limiting the total amount of foreign debt a foreign-invested enterprise may incur to the difference between the amount of total investment approved by the Ministry of Commerce or its local counterpart for such enterprise and the amount of registered capital of such enterprise, and requiring registration of any such loans with SAFE. As of December 31, 2016, the amount of approved total investment of Tiandihui was $2,707,490 (RMB 18,800,000) and TDH HK have invested the same amount of $2,707,490 (RMB 18,800,000) into Tiandihui, which means Tiandihui needs to obtain additional approval for total investment amount from the local counterpart of Ministry of Commerce. During 2017, we have successfully obtained the investment approval from Ministry of Commerce for our proceeds of IPO.

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In March 2015, SAFE issued the Circular Concerning the Reform of the Administration of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 19, which became effective in June 2015. SAFE Circular 19 regulates the conversion by a foreign-invested enterprise of foreign currency registered capital into RMB by restricting how the converted RMB may be used. Furthermore, SAFE promulgated a circular in June 2016, SAFE Circular 16, which further revises some clauses in the SAFE Circular 19. SAFE Circular 19 and 16 provide that the capital-account foreign exchange incomes of a domestic enterprise shall not be directly or indirectly used for expenditures that are forbidden by relevant laws and regulations, for purposes that are not included in the business scope approved by the applicable government authority, shall not be directly or indirectly used for investments in securities or for any other kind of wealth-managing investments than banks’ principal-secured products unless otherwise prescribed by other laws and regulations, shall not be directly or indirectly used for issuing RMB entrusted loans (unless expressly permitted in the business scope approved by the competent governmental authorities) or repaying inter-enterprise loans (including advances by the third party) or repaying bank loans in RMB which have been sub-lent to third parties, shall not be used for granting loans to non-affiliated enterprises unless expressly permitted in the business scope and shall not be used for the construction or purchase of real estate not for self-use (except for real estate enterprises). In addition, SAFE supervises the flow and use of the RMB capital converted from foreign currency registered capital of a foreign-invested company by further focusing on ex post facto supervision and violations. These two circulars may limit our ability to use the net proceeds from this offering to invest in or acquire any other Chinese companies in China, which may adversely affect our liquidity and our ability to fund and expand our business in China.

Capital Resources

As of December 31, 2020 and 2019

The following table provides certain selected balance sheets comparisons between years ended December 31, 2020 and 2019:

|  | December 31, |  |  |  |  |  |  |
|  | 2020 |  |  | 2019 |  |  | Fluctuation |  |  | % |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 6,566,549 |  |  | $ | 5,114,175 |  |  |  | 1,452,374 |  |  |  | 28 |
Restricted cash |  |  | 182,515 |  |  |  | 1,390,403 |  |  |  | (1,207,888 | ) |  |  | -87 |
Short-term investments |  |  | 3,138,578 |  |  |  | - |  |  |  | 3,138,578 |  |  |  | 100 |
Accounts receivable, net |  |  | 168,499 |  |  |  | 21,657 |  |  |  | 146,842 |  |  |  | 678 |
Advanced to suppliers, net |  |  | 41,088 |  |  |  | 39,806 |  |  |  | 1,282 |  |  |  | 3 |
Inventories, net |  |  | 247,245 |  |  |  | 473,216 |  |  |  | (225,971 | ) |  |  | -48 |
Prepayment and other current assets, net |  |  | 172,481 |  |  |  | 153,633 |  |  |  | 18,848 |  |  |  | 12 |
Total current assets |  |  | 10,516,955 |  |  |  | 7,192,890 |  |  |  | 3,324,065 |  |  |  | 46 |
Property, plant and equipment, net |  |  | 6,636,995 |  |  |  | 6,562,669 |  |  |  | 74,326 |  |  |  | 1 |
Land use rights, net |  |  | 1,009,005 |  |  |  | 973,224 |  |  |  | 35,781 |  |  |  | 4 |
Long-term investments |  |  | - |  |  |  | 71,757 |  |  |  | (71,757 | ) |  |  | -100 |
Operating lease right-of-use assets |  |  | 19,103 |  |  |  | - |  |  |  | 19,103 |  |  |  | 100 |
Operating lease right-of-use assets - related parties |  |  | 270,852 |  |  |  | 286,670 |  |  |  | (15,818 | ) |  |  | -6 |
Total non-current assets |  |  | 7,935,955 |  |  |  | 7,894,320 |  |  |  | 41,635 |  |  |  | 1 |
Total assets |  | $ | 18,452,910 |  |  | $ | 15,087,210 |  |  |  | 3,365,700 |  |  |  | 22 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable |  | $ | 3,209,763 |  |  | $ | 3,436,939 |  |  |  | (227,176 | ) |  |  | -7 |
Account payable - related parties |  |  | 124,715 |  |  |  | 116,834 |  |  |  | 7,881 |  |  |  | 7 |
Notes payable |  |  | - |  |  |  | 908,008 |  |  |  | (908,008 | ) |  |  | -100 |
Advances from customers |  |  | 90,834 |  |  |  | 116,155 |  |  |  | (25,321 | ) |  |  | -22 |
Bank overdrafts |  |  | 78,320 |  |  |  | 78,320 |  |  |  | - |  |  |  | - |
Short term loans |  |  | 8,391,323 |  |  |  | 7,624,061 |  |  |  | 767,262 |  |  |  | 10 |
Short term loans - related parties |  |  | 985,883 |  |  |  | 892,510 |  |  |  | 93,373 |  |  |  | 10 |
Taxes payable |  |  | 60,729 |  |  |  | 57,521 |  |  |  | 3,208 |  |  |  | 6 |
Due to related parties |  |  | 42,021 |  |  |  | 39,387 |  |  |  | 2,634 |  |  |  | 7 |
Operating lease liabilities, current |  |  | 9,913 |  |  |  | - |  |  |  | 9,913 |  |  |  | 100 |
Operating lease liabilities - related parties, current |  |  | 195,231 |  |  |  | 137,347 |  |  |  | 57,884 |  |  |  | 42 |
Other current liabilities |  |  | 5,882,164 |  |  |  | 1,054,818 |  |  |  | 4,827,346 |  |  |  | 458 |
Total current liabilities |  |  | 19,070,896 |  |  |  | 14,461,900 |  |  |  | 4,608,996 |  |  |  | 32 |
Operating lease liabilities - related party, non-current |  |  | 274,794 |  |  |  | 286,875 |  |  |  | (12,081 | ) |  |  | -4 |
Deferred tax liabilities |  |  | - |  |  |  | 1,036 |  |  |  | (1,036 | ) |  |  | -100 |
Total liabilities |  |  | 19,345,690 |  |  |  | 14,749,811 |  |  |  | 4,595,879 |  |  |  | 31 |

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We maintain cash and cash equivalents in mainland China, Hong Kong, New Zealand and U.S. on December 31, 2020 and in mainland China and U.S. on December 31, 2019.

|  | December 31, |
Country |  | 2020 |  |  | 2019 |
China (Mainland) |  | $ | 2,960,253 |  |  | $ | 5,987,484 |
Hong Kong (through a broker account) |  |  | 156,125 |  |  |  | - |
New Zealand (through a broker account) |  |  | 3,623,001 |  |  |  | - |
U.S. |  |  | 9,685 |  |  |  | 510,235 |
Total |  | $ | 6,749,064 |  |  | $ | 6,497,719 |

The majority of our cash balances at December 31, 2020 are in form of USD and held in a broker accounts in New Zealand and Hong Kong and bank accounts at financial institutions located in China. The majority of our cash balance as of December 31, 2019 are in the form of RMB and held in bank accounts at financial institutions located in China. Cash held in banks in China is not insured. In 1996, the Chinese government introduced regulations relaxing restrictions on the conversion of the RMB; however restrictions still remain, including restrictions on foreign-invested entities. Foreign-invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and loans, is subject to China government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in China is not readily deployable by us for use outside of China.

Cash and cash equivalents and restricted cash

As of December 31, 2020, cash and cash equivalents were $ 6,566,549, compared to $5,114,175 at December 31, 2019. The components of this increase of $244,486 reflected below.

|  | 2020 |  |  | 2019 |
Net cash used in operating activities |  | $ | (2,628,255 | ) |  | $ | (5,626,618 | )
Net cash provided by investing activities |  |  | 3,355,189 |  |  |  | 113,552 |
Net cash provided by (used in) financing activities |  |  | (589,358 | ) |  |  | 9,520,716 |
Exchange rate effect on cash and restricted cash |  |  | 106,910 |  |  |  | (203,577 | )
Net cash inflow |  | $ | 244,486 |  |  | $ | 3,804,073 |

We had current restricted cash of $182,515 and $1,390,403 as of December 31, 2020 and 2019, respectively, among which, $182,515 and $890,403 has been frozen by the court as a result of our current pending legal proceedings as disclosed above, respectively. The balances of notes payable were $0 and $908,008 as of December 31, 2020 and 2019 respectively. As the deposit was provided and only used by us as pledge for its bank acceptance notes and bank letters of credit, could not be used for other purposes during the term of the notes, and directly used to settle the liabilities when the bank acceptance notes and bank letters of credit became due, it was recorded as restricted cash as of December 31, 2019. Due to the pending legal proceedings, certain of our bank deposit under Tiandihui has been temporarily frozen by the court.

Short-term investments

During the year ended December 31, 2020, the Company acquired equity securities of certain publicly listed companies through various open market transactions. The Company’s investments in marketable securities are accounted for pursuant to ASC 321 and reported at their readily determinable fair value as quoted by market exchanges in the consolidated balance sheets with changes in fair value recognized in earnings. Changes in fair value, including realized gain of approximately $1.9 million and unrealized gain of approximately $0.2 million for the year ended December 31, 2020 was included in “investment income” in the accompanying consolidated statements of operations and comprehensive loss.

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Accounts receivable

Accounts receivable, net as of December 31, 2020 was $168,499, an increase of $146,842 compared to $21,657 as of December 31, 2019. $16,656 and $612,249 allowance for credit losses was recorded for the years ended December 31, 2020 and 2019, respectively.

Inventories

As of December 31, 2020, our inventory balance was $247,245, a decrease of $225,971, or 47.75% compared to $473,216 as of December 31, 2019. The decrease was due to the fact that (1) the increasing raw material prices prevented us from storing extra inventory for the year ended December 31, 2020, (2) in 2020, the company’s sales orders decreased significantly.

Due to related parties

As of December 31, 2020, the balances of due to related parties were $42,021, an increase of $2,634 compared to $39,387 on December 31, 2019. The balance of due to related parties represented expenses incurred by related parties in the ordinary course of business, expense paid by related parties on behalf of the Company as well as the loans the Company obtained from related parties for working capital purpose. The loans owed to the related parties are interest free, unsecured and repayable on demand.

Property, plant and equipment, net

Property, plant and equipment, net as of December 31, 2020 were $6,636,995, an increase of $74,326 compared to $6,562,669, as of December 31, 2019. The company disposed certain property, plant and equipment during the year ended December 31, 2019. Depreciation expense for the years ended December 31, 2020 and 2019 was $363,098 and $543,311, respectively.

Land use rights, net

Land use rights, net as of December 31, 2020 were $1,009,005, an increase of $35,781 compared to $973,224 as of December 31, 2019. During the years ended December 31, 2020 and 2019, amortization expense amounted to $28,253 and $28,217, respectively.

Accounts payable and Notes payable

Accounts payable represents our commercial credit offered to the suppliers and notes payable was the bank acceptance notes to suppliers.

Accounts payable decreased by $227,176, to $3,209,763 as of December 31, 2020, from $3,436,939 as of December 31, 2019 due to our severe shortage of sales orders in 2020, we have reduced material purchases and inventory.

Notes payable decreased by $908,008, to $0 as of December 31, 2020, from $908,008 as of December 31, 2019.

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Short term loan

Balance of short-term loan as of December 31, 2020 was $8,391,323, representing an increase of $767,262 or 10%, compared with balance of $7,624,061 as of December 31, 2019 due to nonpayment of the loans upon maturity and new borrowings incurred in 2020.

Taxes payable

Taxes payable represents the accrued enterprise income tax at the year end.

Balance of taxes payable as of December 31, 2020 was $60,729 representing an increase of $3,208, or 5.58%, compared with balance of $57,521 as of December 31, 2019.

Tabular Disclosure of Contractual Obligations

We have certain potential commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments.

As of December 31, 2020, The Company was in default on substantially all of the outstanding loans. According to the contractual agreements and court judgements, the Company is obligated to make full repayment during the year ended December 31, 2021. The following table summarizes our contractual obligations as of December 31, 2020, and the effect of these obligations expected to have on our liquidity and cash flows in future periods:

2021 |  | $ | 9,598,388 |
2022 |  |  | 50,741 |
2023 |  |  | 53,785 |
2024 |  |  | 57,013 |
2025 |  |  | 60,433 |
Thereafter |  |  | 97,022 |
Total |  | $ | 9,917,382 |

Off-Balance Sheet Arrangements

Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

| ● | Any obligation under certain guarantee contracts,

| ● | Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

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| ● | Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement of financial position, and

| ● | Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates on an ongoing basis, including those related to revenue recognition and income taxes. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making the judgments we make about the carrying values of our assets and liabilities that are not readily apparent from other sources. Because these estimates can vary depending on the situation, actual results may differ from the estimates.

The critical accounting policies summarized in this section are discussed in further detail in the notes to the audited consolidated financial statements appearing elsewhere in this Annual Report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, allowance for credit losses, write-down in value of inventories and income taxes including the valuation allowance for deferred tax assets. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

Inventories

Inventories, consisting of raw materials, work in progress, and finished goods, are stated at the lower of cost or net realizable value, with cost computed on a weighted-average basis. The valuation of inventory requires us to estimate excess and slow-moving inventory. We evaluate the recoverability of our inventory based on assumption about expected demand, market conditions, forecasts prepared by its customers, sales contracts and orders in hand.

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Impairment of Long-Lived Assets and Goodwill

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment loss on long-lived assets other than goodwill of $0, $813,344 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s goodwill is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In testing for goodwill impairment, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The Company recorded impairment of goodwill of $0, $0 and $1,599,591 for the years ended December 31, 2020, 2019 and 2018, respectively.

Lease Commitments

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (together with all amendments subsequently issued thereto, “ASC Topic 842”), using the modified retrospective method. The Company elected the transition method which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance within ASC Topic 842, which among others, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease.

The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the right-of-use asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.

The primary impact of applying ASC Topic 842 is the initial recognition of approximately $0.4 million of operating lease liabilities, and approximately $0.4 million of corresponding right-of-use assets, on the Company’s consolidated balance sheet as of January 1, 2019, for leases classified as operating leases under ASC Topic 840, as well as enhanced disclosure of the Company’s leasing arrangements. There is no cumulative effect to retained earnings or other components of equity recognized as of January 1, 2019.

Payments made under operating leases are charged to the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease period. The Company does not have finance lease arrangements as of December 31, 2020 and 2019.

Loss Contingencies

The Company records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. When a loss contingency is not both probable and estimable, the Company does not record an accrued liability but discloses the nature and the amount of possible loss, if material, in the notes to the consolidated financial statements.

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The Company reviews the developments in contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. The Company makes adjustments to provisions and changes to its disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves complex judgments about future events. Management is often unable to estimate the loss or a range of loss, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) there is a lack of clear or consistent interpretation of laws specific to the industry-specific complaints among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including eventual loss, fine, penalty or business impact, if any.

Revenue Recognition

Revenue is measured according to ASC Topic 606, Revenue from Contracts with Customers. Revenue for sale of products is derived from contracts with customers, which primarily include the sale of pet food products. The Company recognizes revenue upon transfer of control of promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer.

Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities, including value-added tax (“VAT”), business tax, applicable local government levies. At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated sales returns based upon historical experience and related terms of customer arrangements.

The allowance for sales returns recorded by the Company was $0, $0.06 million and $0.89 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company does not provide rebate, pricing protection or any other concessions to its customers.

The Company elected to account for shipping and handling fees that occur after the customer has obtained control of goods, for instance, free onboard shipping point arrangements, as a fulfillment cost and accrues for such costs.

Management has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard. Revenue under the segment reporting standard is measured on the same basis as under the revenue standard.

Contract liabilities are recorded when consideration is received from a customer prior to transferring the control of goods to the customer or other conditions under the terms of a sales contract. As of December 31, 2020 and 2019, the Company recorded contract liabilities of $90,834 and $116,155, respectively, which were presented as advances from customers on the accompanying consolidated balance sheets. During the years ended December 31, 2020 and 2019, the Company recognized $56,983 and $158,274 of contract liabilities as revenue, respectively.

Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollar (“$”), which is the reporting currency of the Company. The functional currency of TDH Holdings, TDH HK, TDH Foods and TDH Petfood LLC is United States dollar. The functional currency of Tiandihui, Tiandihui Pet Foodstuffs, Tiandihui Foodstuffs Sales and Chongai Jiujiu, is Renminbi (“RMB”). The functional currency of TDH Group BVBA is Euro (“€”). The functional currency of TDH JAPAN is Yen (“¥”). For the subsidiaries whose functional currencies are RMB, Euro and Yen, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive income or loss. Transaction gains and losses are reflected in the consolidated statements of operations.

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The exchange rates used to translate amounts in RMB into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=RMB):

Period Covered |  | Balance Sheet Date Rates |  |  | Average Rates |
Year ended December 31, 2020 |  |  | 6.5277 |  |  |  | 6.9001 |
Year ended December 31, 2019 |  |  | 6.9680 |  |  |  | 6.9088 |

The exchange rates used to translate amounts in Euro into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=€):

Period Covered |  | Balance Sheet Date Rate |  |  | Average Rate |
Year ended December 31, 2020 |  |  | 0.8153 |  |  |  | 0.8772 |
Year ended December 31, 2019 |  |  | 0.8916 |  |  |  | 0.8934 |

The exchange rates used to translate amounts in Yen into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=¥):

Period Covered |  | Balance Sheet Date Rate |  |  | Average Rate |
Year ended December 31, 2020 |  |  | 103.1589 |  |  |  | 106.7408 |
Year ended December 31, 2019 |  |  | 108.6384 |  |  |  | 109.0086 |

Fair Value of Financial Instruments

Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

The Company measures certain financial assets, including the investment under the measurement alternative method and equity method on other-than-temporary basis, intangible assets and fixed assets at fair value when an impairment charge is recognized.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

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For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term investment, accounts receivable, advances to suppliers, inventories, prepayments and other current assets, accounts payable, notes payables, advances from customers, taxes payable, bank overdrafts, short term loans and other current liabilities, the carrying amounts approximate their fair values due to the short maturities.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards. ASU 2019-12 removes certain exceptions from Topic 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation; (ii) the exception to accounting for basis differences when there are ownership changes in foreign investments; and (iii) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also simplifies GAAP in several other areas of Topic 740 such as (i) franchise taxes and other taxes partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of entities not subject to tax; and (iv) enacted changes in tax laws in interim periods. ASU 2019-12 is effective for public entities for annual reporting periods and interim periods within those years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements and related disclosures.

Impact of Inflation

We do not believe the impact of inflation on our Company is material. Our operations are in China and China’s inflation rates have been relatively stable in the last three years: 2.6% in 2020, 2.3% in 2019, and 3.1% in 2018.

Impact of Foreign Currency Fluctuations

We do not believe the impact of foreign currency fluctuations on our Company is material. Regarding purchase of raw materials, we are subject to commodity price risks arising from price fluctuations in the market prices of the raw materials. We have generally been able to pass on cost increases through price adjustments. However, the ability to pass on these increases depends on market conditions influenced by the overall economic conditions in China.

Most of our oversea sales are denominated in US dollars, for which our oversea sales are exempted from the risk of foreign currency fluctuation.

We have not had any foreign currency investments hedged by currency borrowings or other hedging instruments. We manage our price risks through productivity improvements and cost-containment measures.

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ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

| A. | Directors and senior management

The following table sets forth our executive officers and directors, their ages and the positions held by them as of June 12, 2020:

Name |  | Age |  | Position
Rongfeng Cui |  | 49 |  | Chairman, Class A Director
Dandan Liu |  | 33 |  | Chief Executive Officer, Class A Director
Feng Zhang |  | 38 |  | Chief Financial Officer, Corporate Secretary
Caifen Zou(1) (2) (3) |  | 56 |  | Class B Director, independent
Qiu Li (1) (2) (3) |  | 60 |  | Class B Director, independent
Owens Meng (1) (2) (3) |  | 43 |  | Class C Director, independent

(1) | Member of the Audit Committee.

(2) | Member of the Compensation Committee.

(3) | Member of the Nominating and Corporate Governance Committee.

Rongfeng Cui is the founder of our Company. He has served as our Chairman of the Board of Directors since July 2006. From July 2006 to August 2019, he served as the Company’s Chief Executive Officer. From May 2004 to June 2006, he served in the capacity of the Company’s General Manager. From 1994 to 2004, he held several managerial positions at various Qingdao based companies. Mr. Cui holds an undergraduate degree in International Trade from the Central Radio and Television University and an EMBA degree from Peking University. The Board of Directors determined that Mr. Cui should continue serving as our Chairman given his pivotal role in the Company’s founding.

Dandan Liu was appointed as the Company’s Chief Executive Officer effective as of August 2, 2019. Dandan Liu has served as a Class A director of the Company since February 2019. Ms. Liu founded Beijing Houxin Investments Co., Ltd. in June 2012 and served as its Chief Executive Officer and Chairman from June 2012 to July 2020. Ms. Liu’s valuable entrepreneurial, management, and investment experience together with her in-depth knowledge of the Company provide her with the qualifications and skills to serve as a director of our Company.

Feng Zhang was appointed as the Company’s Chief Financial Officer on February 19, 2020. From August 2018 to September 2019, Feng Zhang worked as Senior Accounting Manager for Beijing Longguang Energy Technology Co., Ltd. From July 2017 to July 2018, Mr. Zhang worked as Accounting Manager for Hebei Yinlong Renewable Energy Co., Ltd. From March 2015 to June 2017, Mr. Zhang worked as Audit Manager for Beijing Xinghua Certified Public Accountants Firm (Partnership). From June 2006 to February 2015, Mr. Zhang worked as Accounting Manager for Boda Instrument Group Co., Ltd. Mr. Zhang is a Certified Public Accountant and received his bachelor degree in Assets Appraisal from Hebei Agricultural University.

Qiu Li is an independent director of the company. Ms. Li has been Senior Consultant of Hangzhou Guohan Financial Holding Co., Ltd. since November 2015. Between March 2010 and October 2015, Ms. Li was director of audit of Hengfeng Bank Hangzhou Branch. Between November 1987 and March 2010, Ms. Li held several managerial positions at Hengfeng Bank headquarter. Ms. Li is a China Certified Public Accountants (CPA). Ms. Li holds a Bachelor’s degree in Management from Shandong Cadres Correspondence University. The Board of Directors determined that Ms. Li should serve as our director based on her experience in business and accounting matters.

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Caifen Zou has served as Senior Advisor of Shandong Renhe Guarantee Company since August 2019. From December 1993 to July 2019, Ms. Zou has served in a number of senior executive roles within CITIC Bank Weihai Branch, including senior manager of Personal Credit Department, general manager of Retail Banking Department, and deputy section chief of Accounting Department, etc. Ms. Zou received her Associate’s degree in Administration Management from Shandong Normal University, and held Intermediate Accountant Qualification Certificate and Intermediate Economist Qualification Certificate in China. The Board of Directors determined that Ms. Zou should serve as our director based on her experience and expertise in accounting, management and internal controls.

Owens Meng is an independent director. Since September 2013, Owens Meng has been the managing director of Beijing Songlin Xinya Financial Consultants, Ltd. From November 2007 to September 2013, he served as chief representative of Sherb Consulting LLC Beijing Representative Office, and managing director of Sherb & Co, LLP, a mid-sized accounting firm which has audited more than 25 China-based, US publicly traded companies. From July 2003 to October 2007, Mr. Meng worked as an audit manager for Grant Thornton Beijing. Mr. Meng received his CPA permit from the state of Delaware, and is a member of China Institute of Certified Public Accountants (CICPA), and a Certified Internal Auditor of the Institute of Internal Auditors. Mr. Meng holds a Bachelor’s degree in accounting and economics from Beijing Technology and Business University. Mr. Meng has served as an independent director of China Customer Relations Centers, Inc. (Nasdaq: CCRC) since September 2014. Mr. Meng was nominated as a director because of his experience in auditing, US GAAP and compliance issues.

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 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.

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. A director must 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.

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 for 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.

A director is not required to hold shares as a qualification to office.

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| B. | Compensation

The following table shows the annual compensation paid by us for the years ended December 31, 2020 and 2019 to our principal executive officers. No officer had a salary during either of the previous two years of more than $100,000.

Name and principal position |  | Year |  |  | Salary ($) |  |  | Bonus ($) |  |  | Total Paid ($) |
Dandan Liu (1) |  | 2020 |  |  |  | 60,000 |  |  |  | - |  |  |  | 0 |
CEO and director |  | 2019 |  |  |  | 5,000 |  |  |  | - |  |  |  | - |
Feng Zhang (2) |  | 2020 |  |  |  | 30,850 |  |  |  | - |  |  |  | - |
CFO |  | 2019 |  |  |  | - |  |  |  | - |  |  |  | - |
Rongfeng Cui (3) |  | 2020 |  |  |  | - |  |  |  | - |  |  |  | - |
Chairman, former President and former CEO |  | 2019 |  |  |  | 14,585 |  |  |  | - |  |  |  | 13,549 |
Cui Rongbing (4) |  | 2020 |  |  |  | - |  |  |  | - |  |  |  | - |
Former CFO and former director |  | 2019 |  |  |  | 17,768 |  |  |  | - |  |  |  | 10,386 |

(1) | Appointed as the Company’s Chief Executive Officer effective as of August 2, 2019.

(2) | Appointed as the Company’s Chief Financial Officer on February 19, 2020.

(3) | The Company’s former President and former CEO was removed by the Company’s Board effective as of August 2, 2019.

(4) | The Company’s former CFO; the Company determined not to renew his initial term of employment expiring on August 31, 2019 for another term.

Compensation Committee Interlocks and Insider Participation

None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors.

Director Compensation

Employee directors do not receive any compensation for their services. Non-employee directors are entitled to receive compensation for their actual travel expenses for each Board meeting attended. We paid $10,000 compensation to each of our non-employee directors during each of the years ended December 31, 2020 and 2019.

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. Our memorandum and articles of association provide that, to the fullest extent permitted by British Virgin Islands law or any other applicable laws, our directors will not be personally liable to us or our shareholders for any acts or omissions in the performance of their duties. 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.

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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.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers 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 as a matter of United States law.

Retirement Benefits

As of December 31, 2020, we have contributed to the government-mandated employee welfare and retirement benefit plan and provided pension, retirement or similar benefits to its employees. The PRC regulations require us to pay the local labor administration bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The local labor administration bureau, which manages various investment funds, will take care of employee retirement, medical and other fringe benefits. We have no further commitments beyond our monthly contribution.

Employment Agreements

The Company terminated Rongfeng Cui’s (former CEO) employment agreement in accordance with its terms. Cui Rongbing’s (former CFO) employment agreement with the Company expired on August 31, 2019, and was not renewed for another term.

Employment agreement with Dandan Liu, CEO

On August 2, 2019, TDH Holdings, Inc. entered into an employment agreement with Dandan Liu to serve in the role of Chief Executive Officer for the initial period of 3 years (commencing as of August 2, 2019 and terminating on July 31, 2022), which term may be automatically renewed for another 3 years unless either party to the agreement terminates the agreement at least 60 days prior to the expiration of the term. Under the terms of this agreement, Ms. Liu’s salary is USD 1,000 per month until end of December 2019. Thereafter Ms. Liu’s annual salary is USD 60,000 payable in 12 equal monthly installments until July 31, 2022. Ms. Liu may be eligible to receive an annual bonus in the amount of 10% of the growth in book value as of the last fiscal year end, subject to review of corporate performance goals set forth by the Compensation Committee. The Compensation Committee will have the sole discretion whether Ms. Liu is entitled to the bonus and the amount of the payment, if any. The employment agreement may be terminated by either party upon 60 days advance notice to the other party. The Company will reimburse Ms. Liu for all reasonable out of pocket expenses in connection with travel, entertainment and other expenses incurred in the performance of her duties. The agreement also contains certain confidentiality, non-disclosure and other provisions that are customary to the agreements of this nature.

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Employment agreement with Feng Zhang, CFO

On February 1, 2020, Qingdao Tiandihui entered into an employment agreement with Feng Zhang to serve in the role of Chief Financial Officer and Corporate Secretary for the initial period of three years, (commencing as of February 1, 2020 and terminating on January 31, 2023). Under the terms of this agreement, Mr. Zhang’s annual salary is RMB 228,000 payable in 12 equal monthly installments. The employment agreement may be terminated by either party upon 15-day advance notice to the other party. The Company will reimburse Mr. Zhang for all reasonable out of pocket expenses in connection with travel, entertainment and other expenses incurred in the performance of his duties. The agreement also contains certain confidentiality, non-disclosure and other provisions that are customary to the agreements of this nature.

| C. | Board Practices

Composition of Board; Risk Oversight

Our Board of Directors presently consists of five directors. The Board membership is divided into three classes, Class A, B and C, respectively, as nearly equal in number as the total number of directors permits. Class A directors will face re-election at our next annual meeting of shareholders and every three years thereafter. Class B directors will face re-election at our second annual meeting of shareholders and every three years thereafter. Class C directors will face re-election at our third annual meeting of shareholders and every three years thereafter.

Except as noted above, there are no family relationships between any of our executive officers and directors. Officers are elected by, and serve at the discretion of, the board of directors. Our board of directors shall hold meetings on at least a quarterly basis. As a smaller reporting company under the NASDAQ rules we are only required to maintain a board of directors comprised of at least 50% independent directors, and an audit committee of at least two members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Securities Exchange Act of 1934. 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. Our board plays a significant role in our risk oversight. The board makes all relevant Company decisions. As such, it is important for us to have our Chief Executive Officer serve on the board as he plays key roles in the risk oversight or the Company. As a smaller reporting 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.

Director Independence

Our board has reviewed the independence of our directors, applying the NASDAQ independence standards. Based on this review, the board determined that each of Caifen Zou, Qiu Li, and Owens Meng are “independent” within the meaning of the NASDAQ rules. In making this determination, our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.

Board Committees

Currently, three committees have been established 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 retains the authority to interpret those plans). The Nominating Committee of the board 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.

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Audit Committee

The Audit Committee will be responsible for, among other matters:

| ● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;

| ● | discussing with our independent registered public accounting firm the independence of its members from its management;

| ● | reviewing with our independent registered public accounting firm the scope and results of their audit;

| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;

| ● | coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures;

| ● | establishing procedures for the confidential and/or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and

| ● | reviewing and approving related-party transactions.

Our Audit Committee consists of Caifen Zou, Qiu Li, and Owens Meng, with Owens Meng serving as chair of the Audit Committee. Our board has affirmatively determined that each of the members of the Audit Committee meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that Lei Wang qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NASDAQ rules.

Compensation Committee

The Compensation Committee will be responsible for, among other matters:

| ● | reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers and directors;

| ● | reviewing key employee compensation goals, policies, plans and programs;

| ● | administering incentive and equity-based compensation;

| ● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and

| ● | appointing and overseeing any compensation consultants or advisors.

Our Compensation Committee consists of Caifen Zou, Qiu Li, and Owens Meng, with Qiu Li serving as chair of the Compensation Committee. Our board has affirmatively determined that each of the members of the Compensation Committee meets the definition of “independent director” for purposes of serving on Compensation Committee under NASDAQ rules.

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Nominating Committee

The Nominating Committee will be responsible for, among other matters:

| ● | selecting or recommending for selection candidates for directorships;

| ● | evaluating the independence of directors and director nominees;

| ● | reviewing and making recommendations regarding the structure and composition of our board and the board committees;

| ● | developing and recommending to the board corporate governance principles and practices;

| ● | reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and

| ● | overseeing the evaluation of the Company’s management

Our Nominating Committee consists of consists of Caifen Zou, Qiu Li, and Owens Meng, with Caifen Zou serving as chair of the Nominating Committee. Our board has affirmatively determined that each of the members of the Nominating Committee meets the definition of “independent director” for purposes of serving on a Nominating Committee under NASDAQ rules.

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 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.

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. A director must 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.

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 for 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.

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Limitation on Liability and Other Indemnification Matters

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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors or officers 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 as a matter of United States law.

| D. | Employees

The table below provides information as to the total number of employees at the end of the last three fiscal years. We have no contracts or collective bargaining agreements with labor unions and have never experienced work stoppages due to labor dispute. We consider our relations with our employees to be good.

|  | 2018 |  |  | 2019 |  |  | 2020 |
Number of Employees |  |  | 204 |  |  |  | 50 |  |  |  | 54 |

| E. | Share Ownership

See Item 7 below.

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ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

| A. | Major shareholders

The following table sets forth certain information regarding beneficial ownership of our shares by each person who is known by us to beneficially own more than 5% of our shares. The table also identifies the share ownership of each of our directors, each of our named executive officers, and all directors and officers as a group. Except as otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Our major shareholders do not have different voting rights than any other holder of our shares.

Shares which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative securities are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting and investment power. Except as otherwise indicated below, each beneficial owner holds voting and investment power directly. The percentage of ownership is based on 54,949,995 shares issued and outstanding as of April 26, 2021. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Qingdao Tiandihui Foodstuffs Co. Ltd., Building 10, 1388 Taifa Road, Huangdao District, Qingdao, Shandong Province, PRC.

Name of Beneficial Owner |  | Shares Owned |  |  | Percentage |
Dandan Liu |  |  | 27,093,921 |  |  |  | 49.31 | %
Rongfeng Cui (1) |  |  | 2,287,324 |  |  |  | 4.16 | %
Feng Zhang |  |  | - |  |  |  | - |
Caifen Zou (1) |  |  | - |  |  |  | - |
Qiu Li (1) |  |  | - |  |  |  | - |
Owens Meng (1) |  |  | - |  |  |  | - |
Directors & executive officers as a group (6 persons) |  |  | 29,381,245 |  |  |  | 53.47 | %
Easthill Capital Management LLC (2) |  |  | 5,400,000 |  |  |  | 9.83 | %
Zou Ventures LLC |  |  | 5,400,000 |  |  |  | 9.83 | %
Zuhua Zou |  |  | 5,100,000 |  |  |  | 9.28 | %

| (1) | Independent director.

| (2) | Mailing address of this shareholder is One League, Unit 62317, Irvine CA 92602. Mr. Philip Zou, the managing member of Easthill Capital Management, LLC, has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of the shares.

| B. | Related Party Transactions

Due from related parties, net

Due from related parties, net consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Tide |  | $ | 46 |  |  | $ | 43 |
Rongfeng Cui |  |  | 44,484 |  |  |  | 41,673 |
Less: Allowance for credit losses |  |  | (44,530 | ) |  |  | (41,716 | )
Due from related parties, net |  | $ | - |  |  | $ | - |

The balance of due from Tide represents operating expenses paid by the Company on behalf of Tide. The balances of due from Rongfeng Cui represents overseas trade receivables collected by him on behalf of the Company.

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Due to related parties

Due to related parties consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Rongbing Cui |  |  | 10,724 |  |  |  | 10,046 |
Rongfeng Cui |  |  | 31,297 |  |  |  | 29,341 |
Total |  | $ | 42,021 |  |  | $ | 39,387 |

The balance of due to related parties represents expenses paid by related parties on behalf of the Company as well as advances the Company obtained from related parties for working capital purposes. The amounts owed to the related parties are unsecured, non-interest bearing and payable on demand.

Short term loans from related parties

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Rongfeng Cui |  | $ | 782,773 |  |  | $ | 751,029 |
Yuxiang Qi |  |  | 172,471 |  |  |  | 112,778 |
Yan Fu |  |  | 30,639 |  |  |  | 28,703 |
Total |  | $ | 985,883 |  |  | $ | 892,510 |

In March 2018, TDH Group BVBA borrowed non-interest bearing, unsecured long term loans from Rongfeng Cui in the aggregate amount of €250,000 (approximately $288,000), of which €60,000 (approximately $69,000), €60,000 (approximately $69,000), €60,000 (approximately $69,000), €60,000 (approximately $69,000), €10,000 (approximately $11,500) and $0 is due in the years ended December 31, 2019, 2020, 2021, 2022, 2023 and thereafter, respectively. The Company did not make any repayment to Rongfeng Cui during the years ended December 31, 2019 and 2020 nor subsequently, such default may lead to callable of the loan at any time by Rongfeng Cui. As a result, the corresponding loan was classified as current liability and included in short term loans – related parties as of December 31, 2020 and 2019. The Company is aware of the possible penalty and/or other consequence due to the default, however, no reasonable estimate can be made at this time.

The Company borrowed unsecured short term loans from related parties in the amount of $49,350 and $4,791,403 during the years ended December 31, 2020 and 2019, respectively. Interest rate for the loans outstanding during the year ended December 31, 2020 ranged from 0% to 25% per annum. The Company made repayment in the amount of $0 and $1,080,947 during the years ended December 31, 2020 and 2019, respectively.

Modification of Loans from related party

In January 2018, the Company entered into a loan agreement with Dandan Liu. In May 2018, the agreement was amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal from RMB3,000,000 (approximately $466,000) to RMB3,030,000 (approximately $471,000) and increase the interest rate from 3% to 15%. Interest rate will be 24% for the period past due. In March 2019, the agreement was further amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal to RMB3,484,500 (approximately $539,000) and extend the maturity date from January 2019 to May 2019. The loan was repaid in full during the year ended December 31, 2019.

In June 2018, the Company entered into a loan agreement with Yuxiang Qi. Interest rate was 15% during the loan period and 24% for the period past due. In March 2019, the agreement was amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal from RMB3,000,000 (approximately $462,000) to RMB3,405,000 (approximately $522,000) and extend the maturity date from December 2018 to May 2019. As of December 31, 2020 and 2019, the Company was in default of this loan, and was subject to 24% annual interest rate.

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The Company analyzed the amendments under ASC 470-50 and concluded that these amendments did not qualify for debt modification.

The interest expenses for loans from related parties amounted to $43,835, $632,251 and $95,091 for the years ended December 31, 2020,2019 and 2018, respectively.

Sales to related parties, purchases from related parties and services provided by related parties

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
SALES TO: |  |  |  |  |  |  |  |  |  |  |  |
Like |  | $ | - |  |  | $ | - |  |  | $ | 1,167,933 |
Zhenyu |  |  | - |  |  |  | 5,778 |  |  |  | - |
Quanmin Chongai |  |  | - |  |  |  | 187,063 |  |  |  | - |
Liujiayi |  |  | - |  |  |  | - |  |  |  | 25,832 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 325,766 |
Total Sales |  | $ | - |  |  | $ | 192,841 |  |  | $ | 1,519,531 |
PURCHASES FROM: |  |  |  |  |  |  |  |  |  |  |  |
Zhenyu |  | $ | - |  |  | $ | - |  |  | $ | 28,872 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 2,689 |
Total Purchases |  | $ | - |  |  | $ | - |  |  | $ | 31,561 |
SERVICE PROVIDED BY: |  |  |  |  |  |  |  |  |  |  |  |
Hanyinhe |  | $ | - |  |  | $ | - |  |  | $ | 9,373 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 278,396 |
TDH JAPAN |  |  | - |  |  |  | - |  |  |  | 134,181 |
Total Services Consumed |  | $ | - |  |  | $ | - |  |  | $ | 421,950 |

For the years ended December 31, 2020, 2019 and 2018, the cost of revenue in connection with sales to related parties were $0, $178,636 and $1,448,533, respectively, which were included in cost of revenue-related parties in the accompanying consolidated statement of operations and comprehensive loss.

During the years ended December 31, 2020, 2019 and 2018, inventories purchased from related parties in the amount of $0, $0 and $26,698, respectively, were used and sold and included in cost of revenue in the accompanying consolidated statements of operations and comprehensive loss.

Accounts receivables from related parties, net

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Like |  | $ | - |  |  | $ | 96,580 |
Quanmin Chongai |  |  | - |  |  |  | 29,509 |
Less: Allowance for credited losses |  |  | - |  |  |  | (126,089 | )
Accounts receivables – related parties, net |  | $ | - |  |  | $ | - |

Accounts payable to related parties

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Yinhe Jiutian |  | $ | 119,629 |  |  | $ | 112,069 |
Kangkang Family Farm |  |  | 5,022 |  |  |  | 4,705 |
Zhenyu Trading |  |  | 64 |  |  |  | 60 |
Total |  | $ | 124,715 |  |  | $ | 116,834 |

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Leases from related parties

The Company has entered into certain lease agreements with its related parties. Operating lease right-of-use assets and operating lease liabilities arising from leases with related parties are as follows:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Operating lease right-of-use assets, related parties |  |  | 270,852 |  |  |  | 286,670 |
Operating lease liability-related parties, current |  |  | 195,231 |  |  |  | 137,347 |
Operating lease liabilities-related party, non-current |  |  | 274,794 |  |  |  | 286,875 |
Total operating lease liabilities, related parties |  | $ | 470,025 |  |  | $ | 424,222 |

| C. | Interests of Experts and Counsel

Not required.

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ITEM 8. | FINANCIAL INFORMATION

| A. | Consolidated Statements and Other Financial Information.

See Item 18 for our audited consolidated financial statements.

Legal Proceedings

Except as set forth below, we are not involved in any legal proceedings; nor are we aware of any claims that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

| ● | Legal claims by vendors and lenders. During the months of November 2019 to April 2021, the Company has been a subject of 57 lawsuits by its raw material supplies, printing and packaging supplies, transportation companies and other vendors. The claims raised in these lawsuits pertain to the Company’s non-payment of various invoices for supplier and vendor services rendered, with interest and costs. As of the date of this Annual Report, the creditors of 44 cases have reached civil conciliation letters with our company, and the court has issued civil judgments in 9 cases, another four withdrew their cases for reasons including lack of evidence. The mediation and judgment is estimated approximately RMB13.86 million (USD2.12 million). On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million). We plan to use $1.3 million auction proceeds to partially settle the legal claims with some of the vendors and also seek other possible mediation plan to further settle the legal claims with vendors. As of the date of this filing, the settlement is still in progress and we anticipate to reach agreements with the vendors soon. On December 2, 2019, Qingdao Lingang Real Estate Co., Ltd. (“QLRE”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The Company entered into a loan agreement with QLRE in 2018 and borrowed RMB20 million (USD3.18 million) from QLRE ub connection of purchase of a factory. The loan was guaranteed by Rongfeng Cui and his wife, Yanjuan Wang. The Company failed to make repayment to QLRE on time. On March 4, 2020, the Court has ruled that: (i) the Company to repay QLRE with loan principal of RMB 20 million plus interest of RMB 550,000 accrued as of October 31, 2019; The payment should be made within 10 business days after the court ruling takes effect (ii) assume and pay the interest at the rate of 2% per month for the period from the date of November 1, 2019 to the date of full discharge of the debt. If the debt not paid within the required timeframe, interest shall be doubled from the date of court order takes effective until the date of full discharge of the debt; (iii) Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for clearing the debts and (iv) The Company and Rongfeng Cui shall jointly bear the litigation fee of RMB77,000 (USD$11,933). As of December 31, 2020 and as of the date of this filing, we have not made the loan repayment to QLRE. Although we anticipate to settle the liabilities with QLRE within 2021, at this point, we cannot predict and determine the exact timing of the settlement. If we eventually fail to settle the debt liabilities, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding. On January 15, 2020, China Construction Bank (“CCB”), instituted a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui, and Yanjuan Wang. The plaintiff alleges that it executed a loan agreement with the Company in the amount of RMB19.93 million (USD3.08 million) for the purchase of manufacturing facility and the associated land use right located at Lingang Economic Development Zone, Huangdao District, Qingdao, Shandong Province, People’s Republic of China. Rongfeng Cui and his wife, Yanjuan Wang, co-signed for this loan as personal guarantors subject to joint and several liability in connection with the loan. The loan with CCB was guaranteed by Rongfeng Cui and Yanjuan Wang, pledged by the aforementioned manufacturing facilities and associated land use right. On April 14, 2020, the Court has ruled that i) the Company to repay RMB19.93 million (USD3.25 million) of principal and accrued interest to CCB, ii) to execute the sale of the mortgaged property and iii) Rongfeng Cui and Yanjuan Wang to bear joint and several security liability for the payment. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were auctioned by the court for $5,098,461 (RMB33.14 million), among which, $3,192,827 (RMB21.14 million) has been used to repay loan principal and accrued interest to CCB based on the court order. The repayment has been completed as of the date of this filing.

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On November 11, 2019, Shanghai Pudong Development Bank Qingdao Branch(“SPDB”), filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB to borrow an aggregate of RMB4.85 million (USD0.75 million) from SPDB for working capital purpose. The borrowing from SPDB was guaranteed by Rongfeng Cui and Yanjuan Wang, pledged by land use right and real property of Saike and a real property of Rongfeng Cui and Yanjuan Wang. The Company failed to make repayment to SPDB on time. On October 24, 2020, the court has ruled that, (i) the Company to repay SPDB with bank acceptance draft principals and interest at the annual interest rate of 18.25%. The payment should be made within 10 business days after the court ruling takes effect. If the debt not paid within the required timeframe, interest shall be doubled from the date of court order takes effective until the date of full discharge of the debt (ii) the Company to bear the litigation fees of RMB156,880 (USD 24,312), (iii) Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for clearing the debts and (iv) if the court decide to auction the pledged land use right and real properties, SPDB shall have the priority right of the repayment from the auction proceeds. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to SPDB. Although we anticipate to settle the liabilities with SPDB within 2021, at this point, we cannot predict and determine the exact timing of the settlement. If we eventually fail to settle the debt liabilities, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

On December 10, 2019, Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), initiated a civil claim against Qingdao Tiandihui Foodstuffs Co., Ltd., Qingdao Saike Environmental Technology Co., Ltd. (“Saike”), Rongfeng Cui, and Yanjuan Wang. In 2018, the Company entered into agreements with SPDB for bank acceptance draft and Gaochuang executed the guarantee of SPDB bank acceptance deposit on behalf of the Company in the amount of RMB1.2 million (USD0.19 million). The Company failed to repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang upon the bank acceptance draft maturity date. The deposit made by Gaochuang was guaranteed by certain of the Company’s fixed assets and patent. Saike, Rongfeng Cui and Yanjuan Wang are also subject to joint and several responsibilities. On December 29, 2020, the court has ruled that, (i) the Company to repay the RMB 1.2 million ($0.19 million) deposit to Gaochuang and the interest at the annual interest rate of 4.15%. The payment should be made within 10 business days after the court ruling takes effect. If the debt not paid within the required timeframe, interest shall be doubled from the date of court order takes effective until the date of full discharge of the debt (ii) the Company to bear the litigation fees of RMB83,127(USD 12,882) and (iii) if the court decides to auction the pledged fixed assets and patent, Gaochuang shall have the priority right of the repayment from the auction proceeds. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Gaochuang. Although we anticipate to settle the liabilities with Gaochuang within 2021, at this point, we cannot predict and determine the exact timing of the settlement. If we eventually fail to settle the debt liabilities, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

On May 6, 2020, the Postal Savings Bank of China Limited Weihai Road Sub-branch of Qingdao North District (hereinafter referred to as Postal Savings) filed a civil lawsuit against Qingdao Tiandihui Foodstuffs Co., Ltd., Rongfeng Cui and Yanjuan Wang. The Company entered into two loan agreements with Postal Savings in 2018 and 2019, respectively, and borrowed RMB9.9 million ($1.53 million) in aggregate. The loans are guaranteed by Rongfeng Cui and Yanjuan Wang, pledged by a real property of the Company and a real property of Rongfeng Cui. The Company failed to make repayment to Postal Savings on time. In June 2020, the court has ruled that, i) the Company to repay Postal Savings with principals and interest of the loan, ii) the Company to bear the litigation fees incurred by Postal Savings, iii) if the court decide to auction the pledged real properties, Postal Savings shall have the priority right of the repayment from the auction proceeds and iv) Rongfeng Cui and Yanjuan Wang, as guarantors, shall bear joint and several responsibilities for clearing the debts. As of December 31, 2020 and as of the date of this filing, we have not made the repayment to Postal Savings. Although we anticipate to settle the liabilities with Postal Savings within 2021, at this point, we cannot predict and determine the exact timing of the settlements. If we eventually fail to settle the debt liabilities, there is a potential risk that Qingdao Tiandihui Foodstuffs Co., Ltd. may be forced into bankruptcy proceeding.

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| ● | Labor arbitration claims by former employees. The Company estimates that its headcount will reduce to around 54 full-time employees through the end of this adjustment period. As a result of the layoffs, certain of the Company’s former employees commenced arbitration proceedings against the Company under applicable labor rules and standards, claiming, among others, lost wages, severance payments and/or social security obligations totaling RMB3.68 million (USD0.56 million). As of the reporting date, there were 98 labor arbitrations, of which 6 reached a settlement at the first instance stage, and 92 decisions of the second instance have taken effect. The Company accrued approximately $0.4 million contingent liabilities in other current liabilities on the consolidated balance sheet as of December 31, 2019 and recognized contingent losses of approximately $0.4 million for the year ended December 31, 2019. Upon ruling of these cases, the Company further accrued approximately $0.1 million wage and/or severance payables in other current liabilities on the consolidated balance sheet as of December 31, 2020 and recognized losses of approximately $0.1 million for the year ended December 31, 2020. On March 13, 2021, the land and factory buildings above the land owned by Qingdao Tiandihui Foodstuffs Co., Ltd. were actioned by the court for $5,098,461 (RMB 33.14 million). We plan to use $0.56 million auction proceeds to settle the labor arbitration cases with our former employees.

Dividend Policy

The holders of shares of our common shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, the operating companies may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.

| B. | Significant Changes

Except as disclosed elsewhere in this Annual Report, 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

The following table sets forth, for the calendar quarters indicated and through June 12, 2020, the quarterly high and low sale prices for our shares, as reported on NASDAQ Stock Market.

|  | Shares |
|  | High |  |  | Low |
Quarterly and Monthly Highs and Lows |  |  |  |  |  |  |  |
1st Quarter 2019 |  |  | 6.8764 |  |  |  | 6.6840 |
2nd Quarter 2019 |  |  | 6.9212 |  |  |  | 6.6691 |
3rd Quarter 2019 |  |  | 7.1748 |  |  |  | 6.7845 |
4th Quarter 2019 |  |  | 7.1668 |  |  |  | 6.9602 |
1st Quarter 2020 |  |  | 7.1011 |  |  |  | 6.8870 |
2nd Quarter 2020 |  |  | 7.1518 |  |  |  | 6.9924 |
3rd Quarter 2020 |  |  | 7.0710 |  |  |  | 6.7591 |
4th Quarter 2020 |  |  | 6.8101 |  |  |  | 6.5236 |
1st Quarter 2021 |  |  | 6.5408 |  |  |  | 6.4391 |

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| B. | Plan of Distribution

Not Applicable.

| C. | Markets

Our shares have been listed on the NASDAQ Stock Market under the symbols PETZ, since September 21, 2017, following the completion of our initial public offering.

On October 29, 2019, the Company received Nasdaq confirmation of the Company’s regaining technical compliance with the minimum stockholders’ equity rule and with other applicable requirements as set forth in the Panel’s decision following an oral hearing in August 2019. In connection with this confirmation, the Nasdaq Panel imposes a Panel Monitor under Listing Rule 5815(d)(4)(A) until October 30, 2020 for the purposes of monitoring the Company’s continued compliance with the stockholders’ equity requirement. The decision provided that if and to the extent the Company’s stockholders’ equity fell below $2.5 million and the Company did not qualify for listing under an alternative to the stockholders’ equity rule, the Panel (or a newly convened Panel if the initial Panel is unavailable) would promptly conduct a hearing with respect to this deficiency, and the Company’s securities could be delisted from Nasdaq. During the monitoring period, the Company was obligated to notify the Panel, in writing, in the event its stockholders’ equity fell below $2.5 million for any reason, or if the Company otherwise fell out of compliance with any other applicable listing requirement. In the event that the Company failed to comply with any other requirement for continued listing during the monitoring period, the Company would have been provided written notice of the deficiency and an opportunity to present a definitive plan to regain compliance to the Panel. The Panel would thereafter render a determination with respect to the Company’s continued listing on Nasdaq. On November 12, 2020, the Company, was informed that, following a 12-month compliance monitoring period under a Panel Monitor pursuant to a Compliance with Monitor letter dated October 29, 2019, the Company was currently in compliance with applicable Nasdaq Listing Rules, and the Panel has determined to continue the listing of the Company’s securities on The Nasdaq Stock Market. There is no assurance that the Company will remain in compliance with the continued listing criteria. If it fails to remain in compliance its securities could be delisted. If the Company is delisted from Nasdaq, its common shares may be traded over-the-counter on the OTC Bulletin Board or in the “pink sheets” if one or more market makers seeks and obtains approval by the Financial Industry Regulatory Authority to continue quoting in the Company’s common shares.

The Company cannot provide any assurance that its common shares will trade at levels necessary to regain and maintain compliance with the above-referenced bid price rule before the compliance deadline. The Company intends to continue to monitor the bid price for its common stock. If the Company’s common shares do not trade at a level that is likely to regain compliance with the Nasdaq requirements, the Company’s Board of Directors will consider other options that may be available to achieve compliance.

| D. | Selling Shareholders

Not Applicable.

| E. | Dilution

Not Applicable.

| F. | Expenses of the Issue

Not Applicable.

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ITEM 10. | ADDITIONAL INFORMATION

| A. | Share Capital

Not Applicable.

| B. | Memorandum and Articles of Association

The information required by Item 10.B of Form 20-F is included in the section titled “Description of Share Capital” in our Registration Statement on Form F-1 initially filed with the SEC on August 11, 2017 (File No.: 333-219896), which section is incorporated herein by reference.

| C. | Material Contracts

None

| D. | Exchange controls

Under British Virgin Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our shares.

| E. | Taxation

PRC Enterprise Income Tax

According to the Enterprise Income Tax Law of PRC (the “EIT Law”), which was promulgated on March 16, 2007, last amended in February 2017 and became effective as of January 1, 2008, the income tax for both domestic and foreign-invested enterprises is at a uniform rate of 25%. The Regulation on the Implementation of Enterprise Income Tax Law of the PRC (the “EIT Rules”) was promulgated on December 6, 2007 and became effective on January 1, 2008. On April 14, 2008, the Chinese Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation enacted the Administrative Measures for Certifying High and New Technology Enterprises (the “Certifying Measures”), which retroactively became effective on January 1, 2008 and was amended on January 29, 2016. Under the EIT Law and the Certifying Measures, certain qualified high-tech companies may benefit from a preferential tax rate of 15% if they own their core intellectual properties and are classified into certain industries strongly supported by the Chinese government and set forth by certain departments of the Chinese State Council. Tiandihui was granted the high and new technology enterprise (“HNTE”) qualification valid until the year end of December 2018. The Company was subject to 25% income tax rate in 2019 and 2020. There can be no assurance, however, that Tiandihui will continue to meet the qualifications for such a reduced tax rate. In addition, there can be no guaranty that relevant governmental authorities will not revoke Tiandihui’s “high and new technology enterprise” status in the future. Uncertainties exist with respect to how the EIT Law applies to the tax residence status of Tiandihui and our offshore subsidiaries. Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise”, which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, at April 22, 2009 which provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following criteria are satisfied:

| ● | the place where the senior management and core management departments that are in charge of its daily operations perform their duties is mainly located in the PRC;

| ● | its financial and human resources decisions are made by or are subject to approval by persons or bodies in the PRC;

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| ● | its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and

| ● | more than half of the enterprise’s directors or senior management with voting rights frequently reside in the PRC.

We do not believe that we meet the conditions outlined in the preceding paragraph since Tiandihui does not have a PRC enterprise or enterprise group as our primary controlling shareholder. In addition, we are not aware of any offshore holding companies with a corporate structure similar to the Company that has been deemed a PRC “resident enterprise” by the PRC tax authorities.

If we are deemed a China resident enterprise, we may be subject to the EIT at the rate of 25% on our global income, except that the dividends we receive from our Chinese subsidiaries may be exempt from the EIT to the extent such dividends are deemed dividends among qualified resident enterprises. If we are considered a resident enterprise and earn income other than dividends from our Chinese subsidiaries, a 25% EIT on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

PRC Business Tax and VAT

Pursuant to the Provisional Regulation of China on Business Tax last amended on November 10, 2008 and effective as of January 1, 2009 and the Detailed Rules for the Implementation of the Provisional Regulation of China on Business Tax last amended on October 28, 2011 and effective as of November 1, 2011, all entities and individuals engaged in providing taxable services, transfer of intangible assets or the sale of real estate are subject to business tax. According to the Provisional Regulations of the People’s Republic of China on Value-added Tax (2017), which were revised and came into effect on November 20, 2017, the sales of goods, processing, repair and replacement services, sales of services, intangible assets, immovable property and imported goods within the territory of the People’s Republic of China must pay VAT. The amount of VAT payable is calculated as “output VAT” minus “input VAT”, and the rates of VAT are 13% or 9% for sales of our goods as determined by State Administration of Taxation.

People’s Republic of China Taxation

Under the EIT law and EIT Rules, both of which became effective on January 1, 2008, the income tax for both domestic and foreign-invested enterprises is at a uniform rate of 25%, unless they qualify for certain exceptions. On April 14, 2008, the Chinese Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation enacted the Certifying Measures, which retroactively became effective on January 1, 2008 and was amended on January 29, 2016 provide that certain qualified high-tech companies may benefit from a preferential tax rate of 15% if they own their core intellectual properties and are classified into certain industries strongly supported by the Chinese government and set forth by certain departments of the Chinese State Council. Tiandihui was granted the HNTE qualification valid for three years commencing on December 2, 2016. Tiandihui’s status as a “high-tech enterprise” was automatically revoked by the relevant government departments when it expired on December 2, 2019. We are a holding company incorporated in the British Virgin Islands and we gain substantial income by way of dividends from our PRC subsidiaries. The EIT Law and Rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC Subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has tax treaty with China that provides for a different withholding arrangement.

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.

83

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.

Taxation of Dividends and Other Distributions on our 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). With respect to corporate U.S. Holders, 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. The dividends will not be eligible for the dividends-received deduction allowed in respect of dividends received from other U.S. corporations.

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With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be 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, our common shares will be considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States when 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 on our common shares 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.”

Taxation of Dispositions of 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 shares 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 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 be eligible for the capital gains tax rate of 20% (or lower for individuals in lower tax brackets). 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.

Passive Foreign Investment Company

Based on our current and anticipated operations and the composition of our assets, we do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year ending December 31, 2018. Our actual PFIC status for the current taxable years ending December 31, 2018 will not be determinable until after the close of such year and, accordingly, there is no guarantee that we will not be a PFIC for the current 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.

85

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 such years cannot be offset by any net operating losses for such years, and gains 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 that 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 Shares” generally would not apply.

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.

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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 at a current rate of 28%. 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.

United States Federal Income Taxation

The following sets forth the material British Virgin Islands, Chinese and U.S. federal income tax matters 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 on 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.

Belgium taxation

The current enterprise income tax rate is approximately 34%, which includes 3% additional tax, for Belgium companies. Small and medium-sized enterprises may enjoy preferential tax rate if they meet the requirements.

Japan taxation

The enterprise income tax includes national income tax and local special tax for companies operated in Japan. The current national enterprise income tax rate is 30%. And the actual income tax burden will be around 35% - 40% given the local special tax was considered.

| F. | Dividends and paying agents

Not required.

87

| G. | Statement by experts

Not required.

| H. | Documents on display

We file annual reports and other information with the Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange Act. Annual reports and other information we file with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices upon payment of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with the Commission which can be assessed at http://www.sec.gov.

| I. | Subsidiary Information

Not required.

ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

Our main interest rate exposure relates to bank borrowings. We manage our interest rate exposure with a focus on reducing our overall cost of debt and exposure to changes in interest rates. In 2020, we had $5.11 million weighted average outstanding bank loans, with weighted average effective interest rate of 9.03%. In 2019, we had $4.73 million weighted average outstanding bank loans, with weighted average effective interest rate of 5.54%. In the year 2018, we had $1.87 million weight average outstanding bank loans, with weighted average effective interest rate of 6.06%.

As of December 31, 2020, 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 $3,387, lower/higher, respectively, mainly as a result of higher/lower interest income from our cash and cash equivalents and loan receivables.

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 $2,620, lower/higher, respectively, mainly as a result of higher/lower interest income from our cash and cash equivalents and loan receivables.

Foreign Currency Risk

Our functional currency is the RMB, Euro and Yen, and our financial statements are presented in U.S. dollar. We mainly use RMB in domestic transaction, and the transaction settled with Euro and Yen are immaterial. The RMB appreciated against the U.S. dollar by 6.5% in 2020 and depreciated by 4.1% in 2019. The change 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 denominated in RMB and in U.S. dollars, our exposure to foreign exchange risk will 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.

ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not required.

88

PART II

ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

As of December 31, 2020, there has been approximately USD12.78 million default of indebtedness and there is no any arrearage in the payment of dividends.

ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. | CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of December 31, 2020 (the “Evaluation Date”), the Company carried out an evaluation, under the supervision of and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer (the “Certifying Officers”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on the foregoing, the Certifying Officers concluded that as of the Evaluation Date the Company’s disclosure controls and procedures were not effective as of December 31, 2020.

The material weakness identified by our management was a lack of control procedures implemented to ensure the Company’s business is not adversely affected after the change of the key member of the management team. As the Company suffered from many operating difficulties in 2019, the former Chief Executive Officer, General Manager, Chief Financial Officer, Chief Production Officer and other senior executives of Tiandihui left the Company at different times, resulting in the lack of continuity and coherence in the Company’s operations and management throughout 2020.

In order to address the foregoing material weakness, we have put in place additional controls, including, among others, hiring and replacing certain management team members. Our CEO has established a new management team to deal with operation management challenges of the Company, and our CFO has been working on improving the Company’s financial and reporting functions. Overall, the Company is working through and standardizing its business processes, instituting business procedures and adding controls and additional supervision, particularly, in the areas of control duties and data sharing and supervision so as to provide effective means of linking various functions and departments within the Company.

We intend to complete the remediation effort on or before the end of the 2021 fiscal year and will conduct periodic assessments of the state of the Company’s financial reporting measures and systems, as a whole.

Changes in Internal Controls over Financial Reporting

Other than the changes described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purpose in accordance with U.S. generally accepted accounting principles.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the framework set forth in the report Internal Control – Integrated framework issued in 2013 by the Committee of Sponsoring Organization of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (1) the control environment, (2) risk assessment, (3) control activities, (4) information and communication and (5) monitoring.

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Based on these evaluations, our management concluded that, due to the material weakness described above, our internal control over financial reporting was not effective as of December 31, 2020.

ITEM 16. | RESERVED

ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT.

Our Board of Directors has determined that Owens Meng is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and “independent” as that term is defined in the NASDAQ listing standards.

ITEM 16B. | CODE OF ETHICS.

We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of the Code of Business Conduct and Ethics is available on our website, www.tdhpet.com. The information on our corporate website is not a part of this Annual Report.

ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table represents the approximate aggregate fees for services rendered by MaloneBailey, LLP for the periods indicated:

|  | December 31, 2020 |  |  | December 31, 2019 |
Audit Fees |  | $ | 195,000 |  |  | $ | 160,000 |
Audit Related Fees |  |  | - |  |  |  | - |
Tax Fees |  |  | - |  |  |  | - |
All Other Fees |  |  | - |  |  |  | - |
Total Fees |  | $ | 195,000 |  |  | $ | 160,000 |

Pre-Approval of Services

Our audit committee evaluated and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.

ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

None.

ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

No purchases of our securities were made by us or our affiliates in 2020.

ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.

None.

ITEM 16G. | CORPORATE GOVERNANCE

None.

ITEM 16H. | MINE SAFETY DISCLOSURE

Not applicable.

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PART III

ITEM 17. | FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. | FINANCIAL STATEMENTS

The financial statements are filed as part of this Annual Report beginning on page F-1.

ITEM 19. | EXHIBITS

Exhibit No. |  | Description
1.1 |  | Form of Underwriting Agreement (5)
3.1 |  | Memorandum and Articles of Association (1).
4.1 |  | Specimen Share Certificate (3).
10.1 |  | Employment Agreement between the Registrant and its CEO (5).
10.2 |  | Employment Agreement between the Registrant and its CFO (5).
10.3 |  | Form of Indemnification Escrow Agreement (3).
10.4 |  | English Translation of Sweet Potato Purchase Agreement (2).
10.5 |  | English Translation of 2015 PSBC Facility Agreement (2).
10.6 |  | English Translation of 2017 PSBC Facility Agreement (2).
10.7 |  | English Translation of 2015 PSBC Working Capital Loan Contract (2).
10.8 |  | English Translation of 2017 PSBC Working Capital Loan Contract (2).
10.9 |  | English Translation of ICBC Online Revolving Loan Contract (2).
10.10 |  | English Translation of the Beijing Jingdong Century Trading Co., Ltd. Food Purchase Agreement (3).
10.11 |  | Form of Lockup Agreement (3).
10.12 |  | English Translation of ICBC Revolving Loan Agreement (4).
12.1 |  | Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
12.2 |  | Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
13.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
14.1 |  | Code of Conduct and Ethics (3).
21.1 |  | List of Subsidiaries of the Registrant (5).
99.1 |  | Charter of the Audit Committee (3).
99.2 |  | Charter of the Compensation Committee (3).
99.3 |  | Charter of the Nominating Committee (3).
99.4 |  | Press Release dated April 26, 2021.
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

(1) | Incorporated by reference from the previously filed as part of the registration statement DRS F-1 filed with the SEC on March 30, 2017.

(2) | Incorporated by reference from the previously filed as part of the registration statement DRS F-1 filed with the SEC on May 24, 2017.

(3) | Incorporated by reference from the previously filed as part of the registration statement DRS F-1 filed with the SEC on June 23, 2017.

(4) | Incorporated by reference from the previously filed as part of the registration statement Form F-1 (File No. 333-219896) filed with the SEC on August 11, 2017.

(5) | Incorporated by reference from the previously filed as part of the registration statement Form F-1 (File No. 333-219896) filed with the SEC on August 30, 2017.

(6) | Incorporated by reference from the previously filed as part of the registration statement Form F-1 (File No. 333-219896) filed with the SEC on September 13, 2017.

91

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.

| TDH Holdings, Inc.
April 26, 2021 | By: | /s/ Dandan Liu
|  | Name: | Dandan Liu
|  | Title: | Chief Executive Officer (Principal Executive Officer)
| TDH Holdings, Inc.
April 26, 2021 | By: | /s/ Feng Zhang
|  | Name: | Feng Zhang
|  | Title: | Chief Financial Officer (Principal Financial and Accounting Officer)

92

TDH HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm |  | F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019 |  | F-3
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020, 2019 and 2018 |  | F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended December 31, 2020, 2019 and 2018 |  | F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018 |  | F-6
Notes to the Consolidated Financial Statements |  | F-7 – F-31

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

TDH Holdings, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of TDH Holdings, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2020, and the 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, 2020 and 2019, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company’s auditor since 2016.

Houston, Texas

April 26, 2021

F-2

TDH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
ASSETS |  |  |
CURRENT ASSETS: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 6,566,549 |  |  | $ | 5,114,175 |
Restricted cash |  |  | 182,515 |  |  |  | 1,390,403 |
Short-term investments |  |  | 3,138,578 |  |  |  | - |
Accounts receivable, net |  |  | 168,499 |  |  |  | 21,657 |
Advances to suppliers, net |  |  | 41,088 |  |  |  | 39,806 |
Inventories, net |  |  | 247,245 |  |  |  | 473,216 |
Prepayments and other current assets, net |  |  | 172,481 |  |  |  | 153,633 |
Total current assets |  |  | 10,516,955 |  |  |  | 7,192,890 |
NON-CURRENT ASSETS |  |  |  |  |  |  |  |
Property, plant and equipment, net |  |  | 6,636,995 |  |  |  | 6,562,669 |
Land use rights, net |  |  | 1,009,005 |  |  |  | 973,224 |
Long-term investments |  |  | - |  |  |  | 71,757 |
Operating lease right-of-use assets |  |  | 19,103 |  |  |  | - |
Operating lease right-of-use assets - related parties |  |  | 270,852 |  |  |  | 286,670 |
Total non-current assets |  |  | 7,935,955 |  |  |  | 7,894,320 |
Total assets |  | $ | 18,452,910 |  |  | $ | 15,087,210 |
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |
CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 3,209,763 |  |  | $ | 3,436,939 |
Accounts payable - related parties |  |  | 124,715 |  |  |  | 116,834 |
Notes payable |  |  | - |  |  |  | 908,008 |
Advances from customers |  |  | 90,834 |  |  |  | 116,155 |
Bank overdrafts |  |  | 78,320 |  |  |  | 78,320 |
Short-term loans |  |  | 8,391,323 |  |  |  | 7,624,061 |
Short-term loans - related parties |  |  | 985,883 |  |  |  | 892,510 |
Taxes payable |  |  | 60,729 |  |  |  | 57,521 |
Due to related parties |  |  | 42,021 |  |  |  | 39,387 |
Operating lease liabilities, current |  |  | 9,913 |  |  |  | - |
Operating lease liabilities - related parties, current |  |  | 195,231 |  |  |  | 137,347 |
Other current liabilities |  |  | 5,882,164 |  |  |  | 1,054,818 |
Total current liabilities |  |  | 19,070,896 |  |  |  | 14,461,900 |
NON-CURRENT LIABILITIES: |  |  |  |  |  |  |  |
Deferred tax liabilities |  |  | - |  |  |  | 1,036 |
Operating lease liabilities - related party, non-current |  |  | 274,794 |  |  |  | 286,875 |
Total liabilities |  |  | 19,345,690 |  |  |  | 14,749,811 |
STOCKHOLDERS’ EQUITY (DEFICIT): |  |  |  |  |  |  |  |
Common stock ($0.001 par value; 200,000,000 shares authorized; 45,849,995 shares issued and outstanding at December 31, 2020 and 2019) |  |  | 45,850 |  |  |  | 45,850 |
Additional paid-in capital |  |  | 21,963,570 |  |  |  | 21,963,678 |
Statutory reserves |  |  | 160,014 |  |  |  | 160,014 |
Accumulated deficit |  |  | (22,849,319 | ) |  |  | (21,974,651 | )
Accumulated other comprehensive income (loss) |  |  | (212,895 | ) |  |  | 142,516 |
Total TDH Holdings, Inc. stockholders’ equity (deficit) |  |  | (892,780 | ) |  |  | 337,407 |
Noncontrolling interest |  |  | - |  |  |  | (8 | )
Total stockholders’ equity (deficit) |  |  | (892,780 | ) |  |  | 337,399 |
Total liabilities and stockholders’ equity (deficit) |  | $ | 18,452,910 |  |  | $ | 15,087,210 |

The accompanying notes are an integral part of these consolidated financial statements

F-3

TDH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

|  | For The Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Net revenue |  | $ | 815,225 |  |  | $ | 12,455,414 |  |  | $ | 22,154,506 |
Net revenue - related parties |  |  | - |  |  |  | 192,841 |  |  |  | 1,519,531 |
Total revenue |  |  | 815,225 |  |  |  | 12,648,255 |  |  |  | 23,674,037 |
Cost of revenue |  |  | 857,060 |  |  |  | 13,992,499 |  |  |  | 26,278,300 |
Cost of revenue - related parties |  |  | - |  |  |  | 178,636 |  |  |  | 1,448,533 |
Total cost of revenue |  |  | 857,060 |  |  |  | 14,171,135 |  |  |  | 27,726,833 |
Gross loss |  |  | (41,835 | ) |  |  | (1,522,880 | ) |  |  | (4,052,796 | )
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Selling expense |  |  | 117,993 |  |  |  | 920,237 |  |  |  | 4,535,945 |
General and administrative expense |  |  | 1,766,109 |  |  |  | 3,702,035 |  |  |  | 2,792,858 |
Research and development expense |  |  | - |  |  |  | - |  |  |  | 1,062,582 |
Impairment of long-lived assets other than goodwill |  |  | - |  |  |  | 813,344 |  |  |  | - |
Impairment of goodwill |  |  | - |  |  |  | - |  |  |  | 1,599,591 |
Total operating expenses |  |  | 1,884,102 |  |  |  | 5,435,616 |  |  |  | 9,990,976 |
Loss from operations |  |  | (1,925,937 | ) |  |  | (6,958,496 | ) |  |  | (14,043,772 | )
Interest expense |  |  | (1,180,489 | ) |  |  | (1,378,755 | ) |  |  | (233,101 | )
Government subsidies |  |  | 8,651 |  |  |  | 129,255 |  |  |  | 81,882 |
Other income |  |  | 137,163 |  |  |  | 1,189 |  |  |  | 20,242 |
Other expense |  |  | (35,197 | ) |  |  | (290,655 | ) |  |  | (26,992 | )
Investment income, net |  |  | 2,120,241 |  |  |  | - |  |  |  | - |
Loss from equity method investment |  |  | - |  |  |  | (127,965 | ) |  |  | (17,524 | )
Total other income (expenses) |  |  | 1,050,369 |  |  |  | (1,666,931 | ) |  |  | (175,493 | )
Loss before income tax benefit |  |  | (875,568 | ) |  |  | (8,625,427 | ) |  |  | (14,219,265 | )
Income tax benefit |  |  | (900 | ) |  |  | - |  |  |  | - |
Net loss |  |  | (874,668 | ) |  |  | (8,625,427 | ) |  |  | (14,219,265 | )
Less: Net loss attributable to non-controlling interest |  |  | - |  |  |  | (8 | ) |  |  | (40 | )
Net loss attributable to TDH Holdings, Inc. |  | $ | (874,668 | ) |  | $ | (8,625,419 | ) |  | $ | (14,219,225 | )
Comprehensive loss |  |  |  |  |  |  |  |  |  |  |  |
Net loss |  | $ | (874,668 | ) |  | $ | (8,625,427 | ) |  | $ | (14,219,265 | )
Other comprehensive loss |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustment |  |  | (355,411 | ) |  |  | (100,954 | ) |  |  | (65,123 | )
Total comprehensive loss |  |  | (1,230,079 | ) |  |  | (8,726,381 | ) |  |  | (14,284,388 | )
Less: Comprehensive loss attributable to noncontrolling interest |  |  | - |  |  |  | (8 | ) |  |  | (347 | )
Comprehensive loss attributable to TDH Holdings, Inc. |  | $ | (1,230,079 | ) |  | $ | (8,726,373 | ) |  | $ | (14,284,041 | )
Loss per common share attributable to TDH Holdings, Inc. |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (0.02 | ) |  | $ | (0.41 | ) |  | $ | (1.49 | )
Diluted |  | $ | (0.02 | ) |  | $ | (0.41 | ) |  | $ | (1.49 | )
Weighted average common shares outstanding |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 45,849,995 |  |  |  | 21,022,598 |  |  |  | 9,558,493 |
Diluted |  |  | 45,849,995 |  |  |  | 21,022,598 |  |  |  | 9,558,493 |

The accompanying notes are an integral part of these consolidated financial statements

F-4

TDH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

|  | Number of Shares |  |  | Common Shares |  |  | Additional Paid-in Capital |  |  | Stock Subscription Receivable |  |  | Statutory Reserves |  |  | Retained Earnings (Accumulated Deficit) |  |  | Accumulated Other Comprehensive Income (Loss) |  |  | Noncontrolling Interest |  |  | Total Stockholders’ Equity (Deficit) |
Balance, January 1, 2018 |  |  | 9,423,750 |  |  | $ | 9,424 |  |  | $ | 9,947,084 |  |  | $ | (100,000 | ) |  | $ | 160,014 |  |  | $ | 869,993 |  |  | $ | 308,286 |  |  | $ | - |  |  | $ | 11,194,801 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (14,219,225 | ) |  |  | - |  |  |  | (40 | ) |  |  | (14,219,265 | )
Issuance of common shares for business acquisition |  |  | 1,092,912 |  |  |  | 1,093 |  |  |  | 1,051,927 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,053,020 |
Collection of stock subscription receivable |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 100,000 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 100,000 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (64,816 | ) |  |  | (307 | ) |  |  | (65,123 | )
Balance, December 31, 2018 |  |  | 10,516,662 |  |  | $ | 10,517 |  |  | $ | 10,999,011 |  |  | $ | - |  |  | $ | 160,014 |  |  | $ | (13,349,232 | ) |  | $ | 243,470 |  |  | $ | (347 | ) |  | $ | (1,936,567 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8,625,419 | ) |  |  | - |  |  |  | (8 | ) |  |  | (8,625,427 | )
Issuance of common shares |  |  | 35,333,333 |  |  |  | 35,333 |  |  |  | 10,964,667 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,000,000 |
Disposal of noncontrolling interest |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 347 |  |  |  | 347 |
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (100,954 | ) |  |  | - |  |  |  | (100,954 | )
Balance, December 31, 2019 |  |  | 45,849,995 |  |  | $ | 45,850 |  |  | $ | 21,963,678 |  |  | $ | - |  |  | $ | 160,014 |  |  | $ | (21,974,651 | ) |  | $ | 142,516 |  |  | $ | (8 | ) |  | $ | 337,399 |
Net Loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (874,668 | ) |  |  | - |  |  |  | - |  |  |  | (874,668 | )
Foreign currency translation adjustment |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (355,411 | ) |  |  | - |  |  |  | (355,411 | )
Purchase of noncontrolling interest |  |  | - |  |  |  | - |  |  |  | (108 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8 |  |  |  | (100 | )
Balance, December 31, 2020 |  |  | 45,849,995 |  |  | $ | 45,850 |  |  | $ | 21,963,570 |  |  | $ | - |  |  | $ | 160,014 |  |  | $ | (22,849,319 | ) |  | $ | (212,895 | ) |  | $ | - |  |  | $ | (892,780 | )

The accompanying notes are an integral part of these consolidated financial statements

F-5

TDH HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|  | For The Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Cash flows from operating activities |  |  |  |  |  |  |  |  |
Net loss |  | $ | (874,668 | ) |  | $ | (8,625,427 | ) |  | $ | (14,219,265 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization expense |  |  | 391,351 |  |  |  | 571,528 |  |  |  | 395,355 |
Fair value change of short-term investments |  |  | (2,120,241 | ) |  |  | - |  |  |  | - |
Loss from equity method investment |  |  | - |  |  |  | 127,965 |  |  |  | 17,524 |
Loss on disposal of subsidiaries |  |  | - |  |  |  | 5,018 |  |  |  | - |
Impairment of goodwill |  |  | - |  |  |  | - |  |  |  | 1,599,591 |
Impairment of long-lived assets other than goodwill |  |  | - |  |  |  | 813,344 |  |  |  | - |
Inventory write-down |  |  | 42,241 |  |  |  | 518,119 |  |  |  | 1,668,508 |
Allowance for credit losses |  |  | 74,190 |  |  |  | 659,569 |  |  |  | - |
Deferred income taxes |  |  | (1,106 | ) |  |  | (3,861 | ) |  |  | (591 | )
Loss (gain) on disposal of property, plant and equipment |  |  | (16,870 | ) |  |  | 308,003 |  |  |  | - |
Non-cash lease expense |  |  | 33,944 |  |  |  | 89,176 |  |  |  | - |
Gain on forgiveness of short-term loan |  | $ | (6,265 | ) |  | $ | - |  |  | $ | - |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable, net |  |  | (112,177 | ) |  |  | 329,042 |  |  |  | 1,302,573 |
Accounts receivable - related parties, net |  |  | - |  |  |  | 306,301 |  |  |  | (778,516 | )
Inventories, net |  |  | 201,730 |  |  |  | 2,009,862 |  |  |  | 4,203,927 |
Operating lease liabilities |  |  | (9,382 | ) |  |  | - |  |  |  | - |
Operating lease liabilities – related parties |  |  | 16,262 |  |  |  | 16,404 |  |  |  | - |
Due from related parties, net |  |  | - |  |  |  | (2,206 | ) |  |  | - |
Due to related parties |  |  | - |  |  |  | 14,387 |  |  |  | 18,142 |
Advances to suppliers, net |  |  | (12,179 | ) |  |  | 36,322 |  |  |  | 569,723 |
Prepayments and other current assets, net |  |  | (29,363 | ) |  |  | 516,018 |  |  |  | (291,336 | )
Accounts payable |  |  | (416,506 | ) |  |  | (2,775,356 | ) |  |  | 1,870,157 |
Accounts payable - related parties |  |  | - |  |  |  | (6,703 | ) |  |  | 19,848 |
Interest payable |  |  | 1,065,277 |  |  |  | 260,417 |  |  |  | 119,712 |
Interest payable - related parties |  |  | 43,835 |  |  |  | - |  |  |  | - |
Notes payable |  |  | - |  |  |  | (1,046,257 | ) |  |  | 1,204,910 |
Taxes payable |  |  | - |  |  |  | 13,797 |  |  |  | 32,733 |
Advances from customers |  |  | (31,366 | ) |  |  | (42,923 | ) |  |  | (60,254 | )
Advances from customer - related party |  |  | - |  |  |  | - |  |  |  | (7,397 | )
Other current liabilities |  |  | (866,962 | ) |  |  | 280,843 |  |  |  | 160,914 |
Net cash used in operating activities |  | $ | (2,628,255 | ) |  | $ | (5,626,618 | ) |  | $ | (2,173,742 | )
Cash flows from investing activities |  |  |  |  |  |  |  |  |  |  |  |
Payments to acquire property, plant and equipment |  |  | (47,086 | ) |  |  | (121,560 | ) |  |  | (5,627,422 | )
Proceeds from disposal of property, plant and equipment |  |  | - |  |  |  | 233,747 |  |  |  | - |
Payments to acquire land use rights |  |  | - |  |  |  | - |  |  |  | (854,221 | )
Acquisition of businesses, net of cash acquired |  |  | - |  |  |  | - |  |  |  | 19,888 |
Disposal of subsidiaries |  |  | - |  |  |  | 83 |  |  |  | - |
Loans to related parties |  |  | - |  |  |  | - |  |  |  | (132,147 | )
Repayments from related parties |  |  | - |  |  |  | 1,282 |  |  |  | 235,049 |
Payments for long-term investments |  |  | - |  |  |  | - |  |  |  | (235,605 | )
Purchase of short-term investments |  |  | (38,743,908 | ) |  |  | - |  |  |  | - |
Proceeds from sale of short-term investments |  |  | 42,146,183 |  |  |  | - |  |  |  | - |
Net cash provided by (used in) investing activities |  |  | 3,355,189 |  |  |  | 113,552 |  |  |  | (6,594,458 | )
Cash flows from financing activities |  |  |  |  |  |  |  |  |  |  |  |
Proceeds from issuance of common shares |  |  | - |  |  |  | 6,760,000 |  |  |  | - |
Purchase of noncontrolling interest |  |  | (100 | ) |  |  | - |  |  |  | - |
Collection of stock subscription receivable |  |  | - |  |  |  | - |  |  |  | 100,000 |
Proceeds from related parties |  |  | - |  |  |  | - |  |  |  | 5,306 |
Repayments to related parties |  |  | - |  |  |  | (1,000 | ) |  |  | (385,420 | )
Proceeds from bank overdrafts |  |  | - |  |  |  | 78,162 |  |  |  | - |
Proceeds from short-term loans |  |  | 107,829 |  |  |  | 1,046,275 |  |  |  | 8,400,090 |
Repayments of short-term loans |  |  | (746,437 | ) |  |  | (2,073,177 | ) |  |  | (1,508,056 | )
Proceeds from short-term loans - related parties |  |  | 49,350 |  |  |  | 4,791,403 |  |  |  | 1,176,690 |
Repayments of short-term loans - related parties |  |  | - |  |  |  | (1,080,947 | ) |  |  | (60,490 | )
Net cash provided by (used in) financing activities |  | $ | (589,358 | ) |  | $ | 9,520,716 |  |  | $ | 7,728,120 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |  |  | 106,910 |  |  |  | (203,577 | ) |  |  | 96,808 |
Net change in cash, cash equivalents and restricted cash |  |  | 244,486 |  |  |  | 3,804,073 |  |  |  | (943,272 | )
Cash, cash equivalents and restricted cash, beginning of the year |  |  | 6,504,578 |  |  |  | 2,700,505 |  |  |  | 3,643,777 |
Cash, cash equivalents and restricted cash, end of the year |  | $ | 6,749,064 |  |  | $ | 6,504,578 |  |  | $ | 2,700,505 |
Supplemental cash flow information |  |  |  |  |  |  |  |  |  |  |  |
Interest paid |  | $ | 38,362 |  |  | $ | 1,118,338 |  |  | $ | 113,389 |
Income taxes paid |  | $ | 146 |  |  | $ | - |  |  | $ | - |
Non-cash investing and financing activities |  |  |  |  |  |  |  |  |  |  |  |
Accrued interest added to short-term loan – related party |  | $ | - |  |  | $ | 126,697 |  |  | $ | - |
Operating expenses paid by related parties |  | $ | - |  |  | $ | - |  |  | $ | 157,094 |
Liabilities assumed in connection with purchase of property, plant and equipment |  | $ | 14,592 |  |  | $ | 51,196 |  |  | $ | 38,636 |
Notes payable reclassified to short-term loans |  | $ | 908,850 |  |  | $ | 479,724 |  |  | $ | - |
Receivables from related parties settled with payables to related parties |  | $ | - |  |  | $ | 28,694 |  |  | $ | 114,707 |
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 |
Short-term loans settled by transferring an equity investment to the creditor |  | $ | 70,708 |  |  | $ | - |  |  | $ | - |
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 6,566,549 |  |  | $ | 5,114,175 |  |  | $ | 893,020 |
Restricted cash |  | $ | 182,515 |  |  | $ | 1,390,403 |  |  | $ | 1,807,485 |
Total cash, cash equivalents, and restricted cash |  | $ | 6,749,064 |  |  | $ | 6,504,578 |  |  | $ | 2,700,505 |

The accompanying footnotes are an integral part of these financial statements

F-6

TDH HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – ORGANIZATION

TDH Holdings, Inc. (“TDH Holdings”) was incorporated on September 30, 2015 under the laws of the British Virgin Islands. On November 4, 2015, TDH Holdings incorporated a wholly owned subsidiary, TDH HK Limited (“TDH HK”) in Hong Kong for the purpose of being a holding company for the equity interest in Qingdao Tiandihui Foodstuffs Co., Ltd. (“Tiandihui”). On September 9, 2016, TDH Holdings incorporated TDH Petfood LLC, a Nevada limited liability company, in which TDH Holdings holds 99% equity interest. In December, 2020, TDH Holdings acquired the remaining 1% equity interest of TDH Petfood LLC with a consideration of $100. TDH Petfood LLC does not own any material assets or liabilities. Other than cash and equity interest in TDH HK and TDH Petfood LLC, TDH Holdings has not conducted any operations or own any material assets or liabilities prior to March 1, 2020, and started to invest in marketable securities in March 2020. TDH HK does not conduct any operations or own any material assets or liabilities except for cash and the 100% of the equity interest of Tiandihui which it acquired on February 21, 2016.

Tiandihui was founded in Qingdao City, Shandong Province, People’s Republic of China (“PRC”) on April 22, 2002 as a limited liability company. As of December 31, 2019, Tiandihui had one wholly owned subsidiary: Beijing Chongai Jiujiu Cultural Communication Co., Ltd. (“Chongai Jiujiu”), which was incorporated on March 3, 2011, in Beijing City, PRC. Tiandihui and its wholly owned subsidiary are engaged in the business of development, manufacturing and sales of high quality pet food products under our own formula patents. Our products are produced at Tiandihui facility and sold to the pet owners in PRC and to the retailers and wholesalers throughout worldwide.

On February 21, 2016, TDH HK entered into an equity transfer agreement with Rongfeng Cui and his wife Yanjuan Wang, the shareholders of Tiandihui at the time, to acquire 100% of the equity interests in Tiandihui (“reorganization”).

On July 19, 2016, Tiandihui acquired 100% shares of Chongai Jiujiu from Rongfeng Cui and Yanjuan Wang with a consideration of $87,849 (RMB610,000). The acquisition of Chongai Jiujiu is a transaction between entities under common control.

Immediately before and after the reorganization, the same shareholders of Tiandihui controlled Tiandihui and TDH Holdings. Therefore, for accounting purposes, the reorganization is accounted for as a transaction of entities under common control. Accordingly, the accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented.

On August 9, 2016, a wholly owned subsidiary of the Company, Qingdao Kangkang Development Co., Ltd. (“Kangkang Development”) was incorporated in Qingdao City, PRC. Kangkang Development had no active operation since its incorporation and was dissolved in 2019.

On November 14, 2017, a 55% owned subsidiary of the Company, Yichong (Qingdao) Technology Co., Ltd. (“Yichong”) was incorporated in Qingdao City, PRC. Yichong had no active operation since its incorporation. The Company disposed of its entire equity interests in Yichong in September 2019.

On November 29, 2017, a 55% owned subsidiary of the Company, Qingdao Lingchong Information Technology Co., Ltd. (“Lingchong”) was incorporated in Qingdao City, PRC. Lingchong had no active operation since its incorporation. The Company disposed of its entire equity interests in Lingchong in July 2019.

On January 3, 2018, a wholly owned subsidiary, Qingdao Lile Pet Foodstuffs Co., Ltd. (“Lile”) was incorporated in Qingdao City, PRC. Lile had no active operation since its incorporation and was dissolved in 2019.

In November 2018, the Company completed business acquisitions of TDH Group BVBA, a Belgium entity and TDH JAPAN, a Japanese entity. TDH Group BVBA and TDH JAPAN had limited operation activities for the year ended December 31, 2020. TDH JAPAN was dissolved in February 2021.

F-7

On January 22, 2020, Qingdao Tiandihui Pet Foodstuffs Co., Ltd. (“Tiandihui Pet Foodstuffs”) was incorporated in Qingdao City, PRC.

On January 21, 2020, Qingdao Tiandihui Foodstuffs Sales Co., Ltd. (“Tiandihui Foodstuffs Sales”) was incorporated in Qingdao City, PRC. Tiandihui Foodstuffs Sales is a wholly owned subsidiary of Tiandihui Pet Foodstuffs.

On February 27, 2020, TDH Foods Limited was incorporated in Hong Kong, with the purpose of being a holding company for equity interests in Tiandihui Pet Foodstuffs. TDH Foods Limited does not conduct any operations or own any material assets or liabilities.

On August 24, 2020, TDH Holdings, Inc. acquired 100% equity interests of TDH Foods Limited. The acquisition of TDH Foods Limited and its subsidiaries is a transaction between entities under common control. Accordingly, the accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the fiscal year presented.

TDH Holdings and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying audited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

This basis of accounting differs in certain material respects from that used for the preparation of the books of account of the Company, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC (“PRC GAAP”), the accounting standards used in the places of their domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of account of the Company to present them in conformity with U.S. GAAP.

The consolidated financial statements include the accounts of the Company, its wholly-owned and majority-owned subsidiaries.

All significant intercompany accounts and transactions have been eliminated upon consolidation. The results of subsidiaries acquired or disposed of during the respective periods are included in the consolidated statements of operations and comprehensive loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to noncontrolling interest in subsidiaries is reflected in the consolidated statements of operations and comprehensive loss.

Going Concern

Our consolidated financial statements have been prepared assuming we 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, 2020, the Company has incurred a net loss of approximately $0.9 million and working capital deficit of approximately $8.6 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 from 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.

F-8

The accompanying consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amount or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollar (“$”), which is the reporting currency of the Company. The functional currency of TDH Holdings, TDH HK, TDH Petfood LLC and TDH Foods Limited is United States dollar. The functional currency of Tiandihui, Tiandihui Pet Foodstuffs, Tiandihui Foodstuffs Sales and Chongai Jiujiu is Renminbi (“RMB”). The functional currency of TDH Group BVBA is Euro (“€”). The functional currency of TDH JAPAN is Yen (“¥”). For the subsidiaries whose functional currencies are RMB, Euro and Yen, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive income or loss. Transaction gains and losses are reflected in the consolidated statements of operations.

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=RMB):

Period Covered |  | Balance Sheet Date Rates |  |  | Average Rates |
Year ended December 31, 2020 |  |  | 6.5277 |  |  |  | 6.9001 |
Year ended December 31, 2019 |  |  | 6.9680 |  |  |  | 6.9088 |

The exchange rates used to translate amounts in Euro into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=€):

Period Covered |  | Balance Sheet Date Rate |  |  | Average Rate |
Year ended December 31, 2020 |  |  | 0.8153 |  |  |  | 0.8772 |
Year ended December 31, 2019 |  |  | 0.8916 |  |  |  | 0.8934 |

The exchange rates used to translate amounts in Yen into U.S. Dollars for the purpose of preparing the consolidated financial statements were as follows (USD$1=¥):

Period Covered |  | Balance Sheet Date Rate |  |  | Average Rate |
Year ended December 31, 2020 |  |  | 103.1589 |  |  |  | 106.7408 |
Year ended December 31, 2019 |  |  | 108.6384 |  |  |  | 109.0086 |

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, allowance for credit losses, write-down in value of inventories and income taxes including the valuation allowance for deferred tax assets. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

F-9

COVID-19 Pandemic

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations. As a result, as the pandemic persists and/or if it worsens, our accounting estimates and assumptions could be impacted in subsequent periods, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time).

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in time deposits and highly liquid investments purchased with original maturities of three months or less.

Restricted Cash

Restricted cash mainly represents bank deposits used to pledge the bank acceptance notes, bank deposits judicially frozen by the court and cash deposit in an escrow account.

Short-term Investments

Starting March 2020 and throughout the year ended December 31, 2020, TDH Holdings invested in equity securities of certain publicly listed companies through various open market transactions. The investments in marketable securities are managed and operated by an asset management company. Pursuant to the asset management agreement, for the period from March 1, 2020 to December 31, 2020, the asset management company is entitled to 25% of total realized gain if certain condition is met. In addition, if the total accumulated realized gain as of December 31, 2020 is in excess of 20% (“exceeding portion”), the asset management company is entitled to additional monetary reward in the amount of 70% of the exceeding portion of the total realized gain.

TDH Holdings’ investments in marketable securities are accounted for pursuant to ASC 321 and reported at their readily determinable fair value as quoted by market exchanges in the consolidated balance sheets with change in fair value recognized in earnings. For the year ended December 31, 2020, change in fair value, including unrealized gain of approximately $0.2 million and net realized gain of approximately $1.9 million, which consists of gross realized gain of approximately $6.3 million net with investment management fee of approximately $4.4 million, was presented as “investment income, net” in the accompanying consolidated statement of operations and comprehensive loss. Also see Note 9.

Current Expected Credit Losses

On January 1, 2020, the Company adopted FASB Accounting Standards Update (ASU) 2016-13 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments,” (ASC Topic 326) and its amendments using the modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under ASC Topic 326, while prior amounts are not adjusted. The Company’s accounts receivables, advances to suppliers, prepayments and other current assets are within the scope of ASC Topic 326. This ASU replaces the incurred loss impairment model with an expected credit loss impairment model for financial instruments. The amendments require entities to consider forward-looking information to estimate expected credit losses, resulting in earlier recognition of losses for receivables that are current or not yet due, which were not considered under the previous accounting guidance. The adoption of this standard did not have a material impact to the Company’s consolidated financial statements.

Our expected loss allowance methodology is developed using an aging method and analyses of historical credit losses experience, current economic conditions, future market forecasts and any recoveries in assessing the lifetime expected credit losses. Additionally, external data and macroeconomic factors are also considered.

F-10

Inventories

Inventories, consisting of raw materials, work in progress, and finished goods, are stated at the lower of cost or net realizable value, with cost computed on a weighted-average basis. The valuation of inventory requires us to estimate excess and slow-moving inventory. We evaluate the recoverability of our inventory based on assumption about expected demand, market conditions, forecasts prepared by its customers, sales contracts and orders in hand.

Property, Plant and Equipment

Property, plant and equipment, are stated at cost less depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Depreciation of property, plant and equipment is calculated based on cost, less their estimated residual value, if any, using the straight-line method over their estimated useful lives. Estimated useful lives are as follows:

Machinery equipment |  | 5 - 20 years |
Computer software |  | 10 years |
Electronic equipment |  | 5 - 10 years |
Office equipment |  | 5 - 10 years |
Motor vehicles |  | 5 - 10 years |
Leasehold improvement |  | Shorter of the lease term or estimated useful life |
Buildings |  | 20 - 50 years |

Land Use Rights

According to the law of PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government for a specified period of time. Land use rights are being amortized using the straight-line method over the periods the rights are granted.

Impairment of Long-Lived Assets and Goodwill

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment loss on long-lived assets other than goodwill of $0, $813,344 and $0 for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s goodwill is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In testing for goodwill impairment, the Company compares the fair value of its reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, the Company will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. The Company recorded impairment of goodwill of $0, $0 and $1,599,591 for the years ended December 31, 2020, 2019 and 2018, respectively.

Long-term Investments

The Company’s long-term investments consist of equity investments without readily determinable fair value and equity method investment.

F-11

In accordance with ASC 323, Investments-Equity Method and Joint Ventures, the Company applies the equity method of accounting to equity investments, over which it has significant influence but does not own a majority equity interests or otherwise control. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%. Under the equity method, the Company initially records its investment at cost and subsequently adjusts the carrying amount of the investment to recognize the Company’s proportionate share of each equity investee’s net income or loss into earnings after the date of investment.

The Company continually reviews its investment under equity method to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors in its determination are the duration and severity of the decline in fair value, the financial condition, operating performance and the prospects of the equity investee, and other company specific information such as recent financing rounds. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.

For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC 820, Fair Value Measurements and Disclosures to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to use the measurement alternative to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any. The Company makes assessment of whether an investment is impaired at each reporting date and recognizes an impairment loss equal to the difference between the carrying value and fair value in the consolidated statements of operations and comprehensive loss if there is any. The Company makes a qualitative assessment of whether the investments are impaired at each reporting date.

Fair Value of Financial Instruments

Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

The Company measures certain financial assets, including the investment under the measurement alternative method and equity method on other-than-temporary basis, intangible assets and fixed assets at fair value when an impairment charge is recognized.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels of inputs that may be used to measure fair value:

Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.

Level 3 — Unobservable inputs which are supported by little or no market activity.

Accounting guidance also describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

F-12

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, advances to suppliers, inventories, prepayments and other current assets, accounts payable, advances from customers, taxes payable, bank overdrafts, short-term loans and other current liabilities, the carrying amounts approximate their fair values due to the short maturities. The fair value of the Company’s investments in the equity securities of publicly listed companies are measured using quoted market prices.

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of December 31, 2020 and 2019 and indicates the fair value hierarchy of the valuation.

|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observation Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Balance |
Publicly listed equity securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2020 |  | $ | 3,138,578 |  |  |  | - |  |  |  | - |  |  |  | 3,138,578 |
As of December 31, 2019 |  | $ | - |  |  |  | - |  |  |  | - |  |  |  | - |

Lease Commitments

On January 1, 2019, the Company adopted ASU 2016-02, Leases (together with all amendments subsequently issued thereto, “ASC Topic 842”), using the modified retrospective method. The Company elected the transition method which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented. The Company elected the package of practical expedients permitted under the transition guidance within ASC Topic 842, which among others, allows the Company to carry forward certain historical conclusions reached under ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected not to record assets and liabilities on its consolidated balance sheet for new or existing lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. In addition, the Company elected the land easement transition practical expedient and did not reassess whether an existing or expired land easement is a lease or contains a lease if it has not historically been accounted for as a lease.

The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The lease term includes option renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the right-of-use asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.

The primary impact of applying ASC Topic 842 is the initial recognition of approximately $0.4 million of operating lease liabilities, and approximately $0.4 million of corresponding right-of-use assets, on the Company’s consolidated balance sheet as of January 1, 2019, for leases classified as operating leases under ASC Topic 840, as well as enhanced disclosure of the Company’s leasing arrangements. There is no cumulative effect to retained earnings or other components of equity recognized as of January 1, 2019.

Payments made under operating leases are charged to the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease period. The Company does not have finance lease arrangements as of December 31, 2020 and 2019. See Note 15 for further discussion.

F-13

Loss per Share

Basic loss per common share is computed by dividing net loss attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding and dilutive potential common shares during the period. Potentially dilutive common shares consist of common shares warrants using the treasury stock method. Common equivalent shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.

Revenue Recognition

Revenue is measured according to ASC Topic 606, Revenue from Contracts with Customers. Revenue for sale of products is derived from contracts with customers, which primarily include the sale of pet food products. The Company recognizes revenue upon transfer of control of promised goods in a contract with a customer in an amount that reflects the consideration the Company expects to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer.

Revenue is recognized net of any taxes collected from customers that are subsequently remitted to governmental authorities, including value-added tax (“VAT”), business tax, applicable local government levies. At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated sales returns based upon historical experience and related terms of customer arrangements.

The allowance for sales returns recorded by the Company was $0, $0.06 million and $0.89 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company does not provide rebate, pricing protection or any other concessions to its customers.

The Company elected to account for shipping and handling fees that occur after the customer has obtained control of goods, for instance, free onboard shipping point arrangements, as a fulfillment cost and accrues for such costs.

Management has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard. Revenue under the segment reporting standard is measured on the same basis as under the revenue standard. See Note 14 for information regarding revenue disaggregation by product lines, marketing channels and countries.

Contract liabilities are recorded when consideration is received from a customer prior to transferring the control of goods to the customer or other conditions under the terms of a sales contract. As of December 31, 2020 and 2019, the Company recorded contract liabilities of $90,834 and $116,155, respectively, which were presented as advances from customers on the accompanying consolidated balance sheets. During the years ended December 31, 2020 and 2019, the Company recognized $56,983 and $158,274 of contract liabilities as revenue, respectively.

Government Grants

Government grants include cash subsidies as well as other subsidies received from the PRC government by the subsidiaries of the Company. Such subsidies are generally provided as incentives from the local government to encourage the expansion of local business. The government grant is recognized in the consolidated statements of operations and comprehensive loss when cash is received and the relevant performance criteria specified in the grant are met.

Research and Development

Research and development costs are expensed as incurred. The costs primarily consist of raw materials used and salaries paid for the development and improvement of the Company’s products.

F-14

Selling Expenses

Selling expenses consist primarily of advertising, salaries and shipping and handling costs incurred during the selling activities. Advertising and transportation expenses are charged to expense as incurred.

Shipping and handling expenses amounted to $620, $287,385 and $741,816 for the years ended December 31, 2020, 2019 and 2018, respectively.

Advertising costs amounted to $144, $22,221 and $150,154 for the years ended December 31, 2020, 2019 and 2018, respectively.

Income Taxes

The Company accounts for income taxes under the provision of FASB ASC 740-10, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Income/Loss

ASC 220 “Comprehensive Income” established standards for reporting and display of comprehensive income/loss, its components and accumulated balances. Components of comprehensive income/loss include net income/loss and foreign currency translation adjustment. As of December 31, 2020, 2019 and 2018, the only component of accumulated other comprehensive income/loss was foreign currency translation adjustment.

Loss Contingencies

The Company records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. When a loss contingency is not both probable and estimable, the Company does not record an accrued liability but discloses the nature and the amount of possible loss, if material, in the notes to the consolidated financial statements.

The Company reviews the developments in contingencies that could affect the amount of the provisions that has been previously recorded, and the matters and related possible losses disclosed. The Company makes adjustments to provisions and changes to its disclosures accordingly to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves complex judgments about future events. Management is often unable to estimate the loss or a range of loss, particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) there is a lack of clear or consistent interpretation of laws specific to the industry-specific complaints among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including eventual loss, fine, penalty or business impact, if any.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, restricted cash, and accounts receivable arising from its normal business activities. The Company places its cash and cash equivalents in financial institutions in the U.S., the PRC, Hong Kong and New Zealand, which the management believes to be credit-worthy. The Company establishes an allowance for credit losses primarily based upon the age of receivables and factors surrounding the credit risk of specific customers.

F-15

Related Parties Transactions

A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related parties may be individuals or corporate entities.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

Segment Reporting

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. The Company’s chief operating decision maker has been identified as the chief executive officer of the Company who reviews financial information based on U.S. GAAP. The chief operating decision maker now reviews results analyzed by marketing channel. This analysis is only presented at the revenue level with no allocation of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.

Recently Issued Accounting Pronouncements not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards. ASU 2019-12 removes certain exceptions from Topic 740, Income Taxes, including (i) the exception to the incremental approach for intra period tax allocation; (ii) the exception to accounting for basis differences when there are ownership changes in foreign investments; and (iii) the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also simplifies GAAP in several other areas of Topic 740 such as (i) franchise taxes and other taxes partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of entities not subject to tax; and (iv) enacted changes in tax laws in interim periods. ASU 2019-12 is effective for public entities for annual reporting periods and interim periods within those years beginning after December 15, 2020, and early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2019-12 on its consolidated financial statements and related disclosures.

F-16

Note 3 – RESTRICTED CASH

Restricted cash consisted of the followings:

|  | December 31, 2020 |  |  | December 31, 2019 |
Bank deposits used to pledge the bank acceptance notes and letters of credit issued by the Company (A) |  | $ | - |  |  | $ | 695,548 |
Bank deposits judicially frozen by the court as a result of legal proceedings |  | $ | 182,515 |  |  | $ | 890,403 | *
Deposit in an escrow account (B) |  | $ | - |  |  | $ | 500,000 |

| * | Including $695,548 of bank deposits used to pledge the bank acceptance notes.

(A) | The cash is restricted for use over the terms of the bank acceptance notes and was used directly to settle the liabilities when the bank acceptance notes became due. As of December 31, 2020 and 2019, the Company had notes payable of $0 and $908,008, respectively.

The notes payable issued during the year ended December 31, 2019 were secured by the land use right and real property of Qingdao Saike Environmental Technology Co., Ltd., a related party, real property of Rongfeng Cui, Chairman of the Board and former Chief Executive Officer (“CEO”) of the Company, and Yanjuan Wang, Rongfeng Cui’s wife, restricted cash of RMB300,000 (approximately $43,000) from Qingdao Gaochuang Technology Finance Guarantee Co., Ltd. (“Gaochuang”), a third party guarantee company, and guaranteed by Rongfeng Cui and Gaochuang. Also see Note 8.

(B) | In connection with its initial public offering, the Company agreed to deposit $500,000 in a non-interest bearing escrow account to satisfy the potential indemnification obligation for two years following September 25, 2017. The Company received the deposit in full during the year ended December 31, 2020.

Note 4 – ACCOUNTS RECEIVABLE, NET AND ACCOUNTS RECEIVABLE-RELATED PARTIES, NET

Accounts receivable, net and accounts receivable - related parties, net, consisted of the following:

|  | December 31, 2020 |  |  | December 31, 2019 |
Accounts receivable |  | $ | 185,155 |  |  | $ | 507,817 |
Less: Allowance for credit losses |  |  | (16,656 | ) |  |  | (486,160 | )
Accounts receivable, net |  | $ | 168,499 |  |  | $ | 21,657 |
Accounts receivable - related parties |  | $ | - |  |  | $ | 126,089 |
Less: Allowance for credit losses |  |  | - |  |  |  | (126,089 | )
Accounts receivable - related parties, net |  | $ | - |  |  | $ | - |

The changes in allowance for credit losses consisted of the following:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Balance, beginning of the year |  | $ | 612,249 |  |  | $ | - |  |  | $ | - |
Provision for credit losses |  |  | 15,757 |  |  |  | 617,496 |  |  |  | - |
Write-off uncollectable accounts receivable |  |  | (612,249 | ) |  |  | - |  |  |  | - |
Translation adjustment |  |  | 899 |  |  |  | (5,247 | ) |  |  | - |
Balance, end of the year |  | $ | 16,656 |  |  | $ | 612,249 |  |  | $ | - |

F-17

Note 5 – INVENTORIES

As of December 31, 2020 and 2019, inventories consisted of the following:

|  | December 31, 2020 |  |  | December 31, 2019 |
Raw materials |  | $ | 253,613 |  |  | $ | 645,002 |
Work in process |  |  | 23,758 |  |  |  | 146,345 |
Finished goods |  |  | 14,523 |  |  |  | 195,586 |
Total |  |  | 291,894 |  |  |  | 986,933 |
Inventory write-down |  |  | (42,241 | ) |  |  | (518,119 | )
Translation adjustments |  |  | (2,408 | ) |  |  | 4,402 |
Inventories, net |  | $ | 247,245 |  |  | $ | 473,216 |

The Company recorded write-down of potentially obsolete or slow-moving inventories of $42,241, $518,119 and $1,501,510 and lower of cost or market adjustment of $0, $0 and $166,998 for the years ended December 31, 2020, 2019 and 2018, respectively.

Note 6 – PROPERTY, PLANT AND EQUIPMENT, NET

As of December 31, 2020 and 2019, property, plant and equipment consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Machinery equipment |  | $ | 1,992,910 |  |  | $ | 2,689,763 |
Electronic equipment |  |  | 32,285 |  |  |  | 29,132 |
Office equipment |  |  | 251,914 |  |  |  | 236,008 |
Vehicles |  |  | 43,709 |  |  |  | 40,947 |
Buildings |  |  | 6,312,545 |  |  |  | 5,917,815 |
Leasehold Improvement |  |  | 328,431 |  |  |  | 307,786 |
Total property, plant and equipment |  |  | 8,961,794 |  |  |  | 9,221,451 |
Less: accumulated depreciation |  |  | (2,324,799 | ) |  |  | (1,852,348 | )
Less: impairment loss |  |  | - |  |  |  | (813,344 | )
Translation adjustments |  |  | - |  |  |  | 6,910 |
Property, plant and equipment, net |  | $ | 6,636,995 |  |  | $ | 6,562,669 |

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $363,098, $543,311 and $388,256, respectively.

As of December 31, 2020 and 2019, certain property, plant and equipment with net book value of $6,174,867 and $5,929,779 were pledged as collateral under certain loan arrangements, respectively (also see Note 8).

As of December 31, 2020 and 2019, certain buildings with net book value of $5,890,975 and $5,617,343 were judicially seized by the court.

F-18

Note 7 – LAND USE RIGHTS

|  | December 31, 2020 |  |  | December 31, 2019 |
Land use rights |  | $ | 1,097,384 |  |  | $ | 1,028,041 |
Accumulated amortization |  |  | (88,379 | ) |  |  | (54,817 | )
Land use rights, net |  | $ | 1,009,005 |  |  | $ | 973,224 |

During the years ended December 31, 2020, 2019 and 2018, amortization expense amounted to $28,253, $28,217 and $7,099, respectively.

As of December 31, 2020 and 2019, land use right with net book value of $829,887 and $793,503, respectively, was pledged as collateral under certain loan arrangements (also see Note 8).

Estimated future amortization expense for land use rights is as follows:

Years ended December 31, |  |  | Amortization expense |
2021 |  |  | $ | 21,070 |
2022 |  |  |  | 21,070 |
2023 |  |  |  | 21,070 |
2024 |  |  |  | 21,070 |
2025 |  |  |  | 21,070 |
Thereafter |  |  |  | 903,655 |
|  |  | $ | 1,009,005 |

Note 8 – SHORT-TERM LOANS

The Company’s loans consist of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Short-term loans |  | $ | 8,391,323 |  |  | $ | 7,624,061 |
Total |  | $ | 8,391,323 |  |  | $ | 7,624,061 |

|  |  | December 31, |  |  | December 31, |
|  |  | 2020 |  |  | 2019 |
Secured |  |  | $ | 8,354,557 |  |  | $ | 7,624,061 |
Unsecured |  |  |  | 36,766 |  |  |  | - |
Total |  |  | $ | 8,391,323 |  |  | $ | 7,624,061 |

For the years ended December 31, 2020 and 2019, the Company entered into various loans agreements with various Chinese banks, other entities and individuals for an aggregated amount of $107,829 and $1,046,275, respectively, to facilitate its business operations. Interest rate for the loans outstanding during the years ended December 31, 2020 and 2019 ranged from 4.15% to 24% and from 2.46% to 25% per annum, respectively.

F-19

During the years ended December 31, 2020 and 2019, the Company did not make repayment on certain notes payables issued by Shanghai Pudong Development Bank (“SPDB”) as scheduled. SPDB paid on behalf of the Company to the holders according to the terms of the agreement. As a result, the unpaid notes payables were reclassified to loan payable to SPDB and the amount was included in short-term loans on the consolidated balance sheets as of December 31, 2020 and 2019. In November 2019, SPDB filed litigation against the Company. In October 2020, the court has ruled that, among others, the Company should repay SPDB principal and interests in full within 10 days from the date of ruling. As of the date of this filing, the Company has not fulfilled the court order. During the year ended December 31, 2020, SPDB used the Company’s restricted cash deposited in the bank to settle against partial of outstanding balance of short-term loans, the cash flow of which was included in the repayments of short-term loans in the financing activities.

As of December 31, 2020, corporate or personal guarantees provided for those loans were as follows:

$ | 553,369 |  |  | Pledged by cash deposit of RMB300,000 (approximately $43,000) from Gaochuang, real property of Rongfeng Cui and Yanjuan Wang, former CEO of the Company and his wife, and land use right and real property of Qingdao Saike Environmental Technology Co., Ltd; Guaranteed by Rongfeng Cui, Yanjuan Wang and Gaochuang.
$ | 1,512,219 |  |  | Pledged by real property of the Company and real property of Rongfeng Cui; Guaranteed by Rongfeng Cui and Yanjuan Wang
$ | 3,040,888 |  |  | Pledged by real property and land use right of the Company; Guaranteed by Rongfeng Cui and Yanjuan Wang
$ | 3,063,866 |  |  | Guaranteed by Rongfeng Cui and Yanjuan Wang
$ | 184,215 |  |  | Pledged by restricted cash of RMB300,000 (approximately $43,000), four patents and certain equipment of the Company; Guaranteed by Rongfeng Cui, Yanjuan Wang and Qingdao Saike Environmental Technology Co., Ltd.

On December 20, 2018, the Company entered into a loan agreement with China Construction Bank (“CCB”) to borrow RMB21,450,000 (approximately $3,119,000). The loan bears an annual interest rate of 5.39% and is due in 84 months. Pursuant to the loan agreement, the proceeds of the loan can only be used in the purchase of manufacturing facility and the associated land use right located at Lingang Economic Development Zone, Huangdao District, Qingdao, Shandong Province, PRC.

The loan agreement between the Company and CCB contains a number of covenants and restrictions. Such covenants and restrictions include, but are not limited to, financial ratios. Unless a breach is remediated or a waiver is obtained, a breach of such covenants and restrictions generally permits lender to demand accelerated repayment of principal and interest.

As of December 31, 2018, the Company did not meet the financial ratios set forth in the debt covenants. Starting December 2019, the Company has been in default on the loan. In January 2020, CCB filed litigation against the Company. In April 2020, the court has ruled that, among others, the Company should repay CCB the principal and interests in full within 10 days from the date of ruling. As a result, the corresponding loan was reclassified as current liability and included in short-term loans on the consolidated balance sheets as of December 31, 2020 and 2019. As of December 31, 2020, the Company has not fulfilled the court order.

The interest expenses accrued for the above loans were $1,136,654, $746,504 and $138,010 for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company’s repayments of substantially all its outstanding short-term loans were delinquent on or around November 2019, and the Company is involved in a number of lawsuits filed by various lenders. See further discussions in Note 16 and Note 19.

Note 9 – OTHER CURRENT LIABILITIES

Other current liabilities mainly consist of accrued liabilities, interest payable owed to third party and related party creditors, and other payables. Accrued liabilities mainly include accrued employee welfares and benefits and accrued liabilities in relation to labor arbitration claims. Other payables primarily represent accrued management fee paid to an asset management company in connection with the management of the Company’s short-term investments in marketable securities.

|  | As of December 31, |
|  | 2020 |  |  | 2019 |
Accrued Liabilities |  | $ | 786,880 |  |  | $ | 776,564 |
Interest Payable |  |  | 1,374,222 |  |  |  | 232,491 |
Interest Payable - Related Parties |  |  | 58,824 |  |  |  | 11,699 |
Other Payables |  |  | 3,662,238 |  |  |  | 34,064 |
Total |  | $ | 5,882,164 |  |  | $ | 1,054,818 |

F-20

Note 10 – RELATED PARTY TRANSACTIONS

The related parties had transactions for the years ended December 31, 2020, 2019 and 2018 consist of the following:

Name of Related Party |  | Nature of Relationship at December 31, 2020
Dandan Liu |  | Principal shareholder, Chief Executive Officer (“CEO”)
Rongfeng Cui |  | Chairman of the Board and Former CEO. Rongfeng Cui ceased to be the CEO of the Company effective August 2, 2019.
Rongbing Cui |  | Former Chief Financial Officer (“CFO”), Rongfeng Cui’s brother
Yanjuan Wang |  | Rongfeng Cui’s wife
Yan Fu |  | Former Sales Vice President
Yuxiang Qi |  | Dandan Liu’s mother
Tide (Shanghai) Industrial Co. Ltd. (“Tide”) |  | Owned by Rongfeng Cui and Yanjuan Wang
Qingdao Like Pet Supplies Co., Ltd. (“Like”) |  | Rongfeng Cui served as CEO, and Shuhua Cui, sister of Rongfeng Cui, served as the legal person. On May 26, 2016, both Rongfeng Cui and Shuhua Cui resigned from their positions, but still have significant influence on Like.
Qingdao Saike Environmental Technology Co., Ltd. (“Saike”) |  | Owned by Rongfeng Cui and Yanjuan Wang
Huangdao Ding Ge Zhuang Kangkang Family Farm (“Kangkang Family Farm”) |  | Controlled by Rongfeng Cui’s father
TDH Group BVBA |  | A Belgium company solely owned by Rongfeng Cui prior to November 30, 2018; a wholly owned subsidiary of the Company since November 30, 2018
TDH JAPAN |  | A Japanese company solely owned by Rongfeng Cui prior to November 30, 2018; a wholly owned subsidiary of the Company since November 30, 2018
Qingdao Yinhe Jiutian Information Technology Co., Ltd. (“Yinhe Jiutian”) |  | Solely owned by Rongbing Cui
Huangdao Hanyinhe Software Development Center Co., Ltd. (“Hanyinhe”) |  | Solely owned by Xiaomei Wang
Zhenyu Trading (Qingdao) Co., Ltd. (“Zhenyu”) |  | Noncontrolling shareholder of Yichong prior to September 27, 2019; Sole shareholder of Yichong after September 27, 2019
Beijing Quanmin Chongai Information Technology Co., Ltd. (“Quanmin Chongai”) |  | Rongbing Cui serves as supervisor of Quanmin Chongai

F-21

Due from related parties, net

Due from related parties, net consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Tide |  | $ | 46 |  |  | $ | 43 |
Rongfeng Cui |  |  | 44,484 |  |  |  | 41,673 |
Less: Allowance for credit losses |  |  | (44,530 | ) |  |  | (41,716 | )
Due from related parties, net |  | $ | - |  |  | $ | - |

The balance of due from Tide represents operating expenses paid by the Company on behalf of Tide. The balances of due from Rongfeng Cui represent overseas trade receivables collected by him on behalf of the Company.

Due to related parties

Due to related parties consisted of the following:

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Rongbing Cui |  |  | 10,724 |  |  |  | 10,046 |
Rongfeng Cui |  |  | 31,297 |  |  |  | 29,341 |
Total |  | $ | 42,021 |  |  | $ | 39,387 |

The balance of due to related parties represents expenses paid by related parties on behalf of the Company as well as advances the Company obtained from related parties for working capital purposes. The amounts owed to the related parties are unsecured, non-interest bearing and payable on demand.

Short-term loans from related parties

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Rongfeng Cui |  | $ | 782,773 |  |  | $ | 751,029 |
Yuxiang Qi |  |  | 172,471 |  |  |  | 112,778 |
Yan Fu |  |  | 30,639 |  |  |  | 28,703 |
Total |  | $ | 985,883 |  |  | $ | 892,510 |

In March 2018, TDH Group BVBA borrowed non-interest bearing, unsecured long-term loans from Rongfeng Cui in the aggregate amount of €250,000 (approximately $288,000), of which €60,000 (approximately $69,000), €60,000 (approximately $69,000), €60,000 (approximately $69,000), €60,000 (approximately $69,000), €10,000 (approximately $11,500) and $0 is due in the years ended December 31, 2019, 2020, 2021, 2022, 2023 and thereafter, respectively. The Company did not make any repayment to Rongfeng Cui during the years ended December 31, 2019 and 2020 nor subsequently, such default may lead to callable of the loan at any time by Rongfeng Cui. As a result, the corresponding loan was classified as current liability and included in short-term loans – related parties as of December 31, 2020 and 2019. The Company is aware of the possible penalty and/or other consequence due to the default, however, no reasonable estimate can be made at this time.

The Company borrowed unsecured short-term loans from related parties in the amount of $49,350 and $4,791,403 during the years ended December 31, 2020 and 2019, respectively. Interest rate for the loans outstanding during the year ended December 31, 2020 ranged from 0% to 25% per annum. The Company made repayment in the amount of $0 and $1,080,947 during the years ended December 31, 2020 and 2019, respectively.

F-22

Modification of Loans from related party

In January 2018, the Company entered into a loan agreement with Dandan Liu. In May 2018, the agreement was amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal from RMB3,000,000 (approximately $466,000) to RMB3,030,000 (approximately $471,000) and increase the interest rate from 3% to 15%. Interest rate will be 24% for the period past due. In March 2019, the agreement was further amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal to RMB3,484,500 (approximately $539,000) and extend the maturity date from January 2019 to May 2019. The loan has been repaid in full during the year ended December 31, 2019.

In June 2018, the Company entered into a loan agreement with Yuxiang Qi. Interest rate was 15% during the loan period and 24% for the period past due. In March 2019, the agreement was amended to, among others, reclassify unpaid interest payable to the principal of the loan, resulting in an increase of principal from RMB3,000,000 (approximately $462,000) to RMB3,405,000 (approximately $522,000) and extend the maturity date from December 2018 to May 2019. The Company has been in default of this loan and is subject to 24% annual interest rate.

The Company analyzed the amendments under ASC 470-50 and concluded that these amendments did not qualify for debt modification.

The interest expenses for the loans from related parties amounted to $43,835, $632,251 and $95,091 for the years ended December 31, 2020,2019 and 2018, respectively.

Sales to related parties, purchases from related parties and services provided by related parties

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
SALES TO: |  |  |  |  |  |  |  |  |  |  |  |
Like |  | $ | - |  |  | $ | - |  |  | $ | 1,167,933 |
Zhenyu |  |  | - |  |  |  | 5,778 |  |  |  | - |
Quanmin Chongai |  |  | - |  |  |  | 187,063 |  |  |  | - |
Liujiayi |  |  | - |  |  |  | - |  |  |  | 25,832 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 325,766 |
Total Sales |  | $ | - |  |  | $ | 192,841 |  |  | $ | 1,519,531 |
PURCHASES FROM: |  |  |  |  |  |  |  |  |  |  |  |
Zhenyu |  | $ | - |  |  | $ | - |  |  | $ | 28,872 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 2,689 |
Total Purchases |  | $ | - |  |  | $ | - |  |  | $ | 31,561 |
SERVICE PROVIDED BY: |  |  |  |  |  |  |  |  |  |  |  |
Hanyinhe |  | $ | - |  |  | $ | - |  |  | $ | 9,373 |
TDH Group BVBA |  |  | - |  |  |  | - |  |  |  | 278,396 |
TDH JAPAN |  |  | - |  |  |  | - |  |  |  | 134,181 |
Total Services Consumed |  | $ | - |  |  | $ | - |  |  | $ | 421,950 |

For the years ended December 31, 2020, 2019 and 2018, the cost of revenue in connection with sales to related parties were $0, $178,636 and $1,448,533, respectively, which were included in cost of revenue-related parties in the accompanying consolidated statements of operations and comprehensive loss.

During the years ended December 31, 2020, 2019 and 2018, inventories purchased from related parties in the amount of $0, $0 and $26,698, respectively, were used and sold and included in cost of revenue in the accompanying consolidated statements of operations and comprehensive loss.

F-23

Accounts receivables from related parties, net

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Like |  | $ | - |  |  | $ | 96,580 |
Quanmin Chongai |  |  | - |  |  |  | 29,509 |
Less: Allowance for credit losses |  |  | - |  |  |  | (126,089 | )
Accounts receivables – related parties, net |  | $ | - |  |  | $ | - |

Accounts payable to related parties

|  | December 31, |  |  | December 31, |
|  | 2020 |  |  | 2019 |
Yinhe Jiutian |  | $ | 119,629 |  |  | $ | 112,069 |
Kangkang Family Farm |  |  | 5,022 |  |  |  | 4,705 |
Zhenyu Trading |  |  | 64 |  |  |  | 60 |
Total |  | $ | 124,715 |  |  | $ | 116,834 |

Leases from related parties

The Company entered into various operating lease agreements for certain premises with its related parties. See Note 15.

Note 11 – INCOME TAXES

British Virgin Islands (“BVI”)

Under the current laws of BVI, TDH Holdings is not subject to tax on income or capital gain. In addition, payments of dividends by the Company to their shareholders are not subject to withholding tax in the BVI.

Hong Kong

The Company’s subsidiary, TDH HK, is incorporated in Hong Kong and has no operating profit or tax liabilities during the period. TDH HK is subject to tax at 16.5% on the assessable profits arising in or derived from Hong Kong.

United State

The Company’s subsidiary, TDH Petfood LLC, is incorporated in the State of Nevada and is subject to the United States Federal income tax at a statutory rate of 21%. No provision for the U.S. Federal income tax has been made as TDH Petfood LLC had no taxable income in this jurisdiction for the reporting periods.

Japan

The Company’s subsidiary, TDH JAPAN, is incorporated in Japan and has no operating profit or tax liabilities during the reporting period. TDH JAPAN is subject to tax at 21.421% on the assessable profits arising in or derived from Japan.

Belgium

The Company’s subsidiary, TDH Group BVBA, is incorporated in Belgium and has no operating profit or tax liabilities during the reporting period. TDH Group BVBA is subject to tax at 29.58% on the assessable profits arising in or derived from Belgium.

F-24

PRC

The Company’s subsidiaries incorporated in the PRC are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect as of January 1, 2008. The law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. According to the tax law, entities that qualify as high and new technology enterprises (“HNTE”) supported by the PRC government are allowed a 15% preferential tax rate instead of the uniform tax rate of 25%.

On December 2, 2016, Tiandihui was granted the HNTE designation jointly by Qingdao science and Technology Bureau, Qingdao Municipal Finance Bureau, Qingdao Municipal State Taxation Bureau, Qingdao Local Taxation Bureau, and is qualified for a preferential tax rate of 15% for the year ended December 31, 2018. Tiandihui is subject to the 25% EIT rate for the years ended December 31, 2020 and 2019.

The provision for income taxes consists of the following:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Current |  | $ | 146 |  |  | $ | - |  |  | $ | - |
Deferred |  |  | (1,046 | ) |  |  | - |  |  |  | - |
Total |  | $ | (900 | ) |  | $ | - |  |  | $ | - |

The reconciliations of the statutory income tax rate and the Company’s effective income tax rate are as follows:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
HK statutory income tax rate |  |  | 16.50 | % |  |  | 16.50 | % |  |  | 16.50 | %
PRC statutory income tax rate difference |  |  | 8.50 | % |  |  | 8.50 | % |  |  | -1.50 | %
Effect of additional deduction on R&D expense and salary for disabled workers |  |  | 0.00 | % |  |  | 0.08 | % |  |  | 0.87 | %
Effect of expenses not deductible for tax purposes |  |  | -2.43 | % |  |  | -0.48 | % |  |  | -0.05 | %
Valuation allowance recognized with respect to the loss in subsidiaries |  |  | -22.57 | % |  |  | -24.60 | % |  |  | -15.82 | %
Other |  |  | -0.10 | % |  |  | 0.00 | % |  |  | 0.00 | %
Total |  |  | -0.10 | % |  |  | - | % |  |  | - | %

Accounting for Uncertainty in Income Taxes

The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.

ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary as of December 31, 2020 and 2019.

Deferred tax assets and liabilities as of December 31, 2020 and 2019 are composed of the following:

|  | As of December 31, |
|  | 2020 |  |  | 2019 |
Deferred tax assets, non-current |  |  |  |  |  |  |  |
Net operating loss carrying forward |  | $ | 4,878,672 |  |  | $ | 5,269,546 |
Total deferred tax assets |  |  |  |  |  |  |  |
Valuation allowance |  |  | (4,878,672 | ) |  |  | (5,269,546 | )
Total |  | $ | - |  |  | $ | - |

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|  | As of December 31, |
|  | 2020 |  |  | 2019 |
Deferred tax liabilities, non-current |  |  |  |  |  |  |  |
Property, plant and equipment |  | $ | - |  |  | $ | 1,036 |
Total |  | $ | - |  |  | $ | 1,036 |

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or are utilized.

Note 12 – STOCKHOLDERS’ EQUITY

Common shares

In November 2018, the Company issued 156,130 and 936,782 common shares to acquire 100% equity interest in TDH Japan and TDH Group BVBA, respectively.

On January 31, 2019, a total of 2,000,000 common shares were issued at $0.5 per share to Zuhua Zou with cash proceeds of $1,000,000 received during the year ended December 31, 2019.

The Company entered into stock subscription agreements in August 2019, pursuant to which the Company agreed to sell 33,333,333 shares to a group of investors for an aggregate purchase price of $10,000,000, or $0.3 per share. A total of 8,300,000 common shares were issued to three investors with cash proceeds of $2,490,000 received during the year ended December 31, 2019, and 25,033,333 common shares were issued to Dandan Liu, the CEO, with $3,270,000 collected in cash and the remaining subscription receivable of $4,240,000 settled with the outstanding loan payable to the CEO.

See Note 19 for issuance of common shares in the subsequent period.

Statutory reserve

As of December 31, 2020 and 2019, the Company had statutory reserve in the amount of $160,014. In accordance with the relevant laws and regulations of the PRC, the Company’s PRC subsidiaries are required to set aside at least 10% of their respective after-tax net profits each year determined in accordance with PRC GAAP and if any, to fund the statutory reserve until the balance of the reserve reaches 50% of their respective registered capital. The statutory reserve is not distributable in the form of cash dividends and can be used to make up cumulative prior year losses.

Restricted net assets

As a result of the PRC laws and regulations, the PRC entities are restricted from transferring a portion of their net assets to the Company. Amounts restricted included additional paid-in capital and statutory reserves of the Company’s PRC subsidiaries.

As of December 31, 2020 and 2019, total restricted net assets were $11,654,519 and $10,628,933, respectively.

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Note 13 – CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Customers

For the years ended December 31, 2020, 2019 and 2018, customers accounting for 10% or more of the Company’s net revenue were as follows:

|  | For the Years Ended December 31, |
Customer |  | 2020 |  |  | 2019 |  |  | 2018 |
Customer A |  |  | * | % |  |  | 12.35 | % |  |  | * | %
Customer G |  |  | * | % |  |  | 12.02 | % |  |  | * | %
Customer P |  |  | 17.33 | % |  |  | * | % |  |  | * | %

| * | Less than 10%

As of December 31, 2020, Customer L, Customer M, Customer N and Customer O accounted for 45.09%, 24.89%, 19.82% and 11.72% of the Company’s total current outstanding accounts receivable, respectively.

As of December 31, 2019, Customer H, Customer I, Customer J and Customer K accounted for 36.88%, 26.51%, 25.61% and 11.00% of the Company’s total current outstanding accounts receivable, respectively.

Suppliers

For the years ended December 31, 2020, 2019 and 2018, suppliers accounting for 10% or more of the Company’s purchase were as follows:

|  | For the Years Ended December 31, |
Supplier |  | 2020 |  |  | 2019 |  |  | 2018 |
Supplier A |  |  | * | % |  |  | 14.16 | % |  |  | * | %
Supplier B |  |  | * | % |  |  | 11.99 | % |  |  | * | %
Supplier C |  |  | * | % |  |  | 12.76 | % |  |  | * | %
Supplier D |  |  | 16.45 | % |  |  | * | % |  |  | * | %
Supplier E |  |  | 10.16 | % |  |  | * | % |  |  | * | %
Supplier F |  |  | 17.62 | % |  |  | * | % |  |  | * | %

| * | Less than 10%

As of December 31, 2020, Supplier B’s balance accounted for 11.84% of the Company’s total accounts payable.

As of December 31, 2019, Supplier B’s balance accounted for 30.30% of the Company’s total accounts payable and notes payable.

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Note 14 – SEGMENT AND REVENUE ANALYSIS

The Company is solely engaged in the business of manufacturing and selling of pet food. Since the nature, the production processes and the marketing channel of the products are substantially similar, the Company is considered as operating in a single reportable segment with revenues derived from multiple product lines, marketing channels and countries. Certain entity-wide disclosures relating to revenues for the years ended December 31, 2020, 2019 and 2018 are as follows:

The net revenue generated from different marketing channels consists of the following:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Overseas sales |  | $ | 226,385 |  |  | $ | 9,995,136 |  |  | $ | 15,832,362 |
Domestic sales |  |  | 574,921 |  |  |  | 2,711,445 |  |  |  | 4,102,457 |
Electronic commerce |  |  | 16,708 |  |  |  | 83,779 |  |  |  | 3,800,668 |
Less: Sale tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | )
Total net revenue |  | $ | 815,225 |  |  | $ | 12,648,255 |  |  | $ | 23,674,037 |

The net revenue generated from different product lines is set forth as following:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Pet chews |  | $ | 59,096 |  |  | $ | 6,469,755 |  |  | $ | 6,271,777 |
Dried pet snacks |  |  | 317,392 |  |  |  | 4,617,742 |  |  |  | 13,611,010 |
Wet canned pet food |  |  | 84,117 |  |  |  | 1,310,001 |  |  |  | 2,782,382 |
Dental health snacks |  |  | 19,915 |  |  |  | 305,452 |  |  |  | 495,581 |
Baked pet biscuits |  |  | 3,132 |  |  |  | 87,410 |  |  |  | 95,169 |
Others |  |  | 334,362 |  |  |  | - |  |  |  | 479,568 |
Less: Sales tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | )
Total net revenue |  | $ | 815,225 |  |  | $ | 12,648,255 |  |  | $ | 23,674,037 |

The net revenue generated from different countries is set forth as following:

|  | For the Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
South Korea |  | $ | 34,378 |  |  | $ | 1,335,791 |  |  | $ | 2,870,998 |
China |  |  | 713,257 |  |  |  | 2,662,247 |  |  |  | 6,569,382 |
United Kingdom |  |  | - |  |  |  | 1,573,546 |  |  |  | 2,415,043 |
Germany |  |  | - |  |  |  | 2,062,110 |  |  |  | 2,522,149 |
Other countries |  |  | 70,379 |  |  |  | 5,156,666 |  |  |  | 9,357,915 |
Less: Sales tax and addition |  |  | (2,789 | ) |  |  | (142,105 | ) |  |  | (61,450 | )
Total net revenue |  | $ | 815,225 |  |  | $ | 12,648,255 |  |  | $ | 23,674,037 |

“Other countries” are comprised of all countries whose revenue, individually, was less than 10% of the Company’s total revenue.

Substantially all of the Company’s long-lived assets are located in the PRC.

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Note 15 – OPERATING LEASES

The Company has entered into multiple lease agreements for the lease of premises for factory buildings, office spaces and warehouses including several lease agreements with related parties. The remaining lease term of the Company’s leases ranges from approximately 2 to 7 years. The estimated effect of lease renewal and termination options, as applicable, was included in the consolidated financial statements in current period.

The components of lease expense were as follows:

|  | For the years ended December 31, |
|  | 2020 |  |  | 2019 |
Operating lease cost |  | $ | 50,244 |  |  | $ | 107,316 |
Short-term lease cost |  |  | - |  |  |  | 22,001 |
Total lease cost |  | $ | 50,244 |  |  | $ | 129,317 |

Rental expense, including expenses incurred from operating leases with related parties, for the year ended December 31, 2018 was $218,414.

Supplemental cash flow information related to leases was as follows:

|  | For the years ended December 31, |
|  | 2020 |  |  | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Operating cash flow from operating leases |  | $ | 9,420 |  |  | $ | 1,737 |
Weighted-average remaining lease term |  |  | 5.97 years |  |  |  | 7.60 years |
Weighted-average discount rate |  |  | 5.39 | % |  |  | 5.39 | %

Supplemental balance sheet information related to leases was as follows:

|  | As of December 31, |
|  | 2020 |  |  | 2019 |
Operating lease right-of-use assets |  | $ | 19,103 |  |  | $ | - |
Operating lease right-of-use assets, related parties |  |  | 270,852 |  |  |  | 286,670 |
Total lease right-of-use assets |  |  | 289,955 |  |  |  | 286,670 |
Operating lease liabilities, current |  |  | 9,913 |  |  |  | - |
Operating lease liabilities-related parties, current |  |  | 195,231 |  |  |  | 137,347 |
Operating lease liabilities-related party, non-current |  |  | 274,794 |  |  |  | 286,875 |
Total operating lease liabilities |  | $ | 479,938 |  |  | $ | 424,222 |

The following table summarizes the maturity of our operating lease liabilities as of December 31, 2020:

2020 |  | $ | 221,182 |
2021 |  |  | 50,741 |
2022 |  |  | 53,785 |
2023 |  |  | 57,013 |
2024 |  |  | 60,433 |
Thereafter |  |  | 97,022 |
Total |  |  | 540,176 |
Less imputed interest |  |  | (60,238 | )
Total operating lease liabilities |  | $ | 479,938 |

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NOTE 16 – COMMITMENTS AND CONTINGENCIES

COMMITMENTS

The Company provides counter guarantee to Gaochuang including a cash deposit of RMB300,000 (approximately $43,000) and asset pledge of four invention patents and certain property, plant and equipment with net book value of $283,892 and $312,436 as of December 31, 2020 and 2019, respectively, in consideration of the guarantees provided by Gaochuang for certain notes payables financed by the Company during the years ended December 31, 2019 and 2018 (the “Counter Guarantee”). The Counter Guarantee arrangement further includes an unlimited joint liability guarantee provided by Rongfeng Cui and Yanjuan Wang, and a third party guarantee provided by Saike.

During the year ended December 31, 2019, the Company did not make repayment on certain notes payables as scheduled, and Gaochuang, as one of the guarantors, paid on behalf of the Company to the holders of such notes payables. As a result, the unpaid notes payables were reclassified to loan payable to Gaochuang and the amount was included in short-term loans on the consolidated balance sheets as of December 31, 2020 and 2019. The loan payable to Gaochuang was pledged and guaranteed by the aforementioned assets and guarantors, respectively, under the counter guarantee.

Future minimum lease payments for operating lease commitments as of December 31, 2020 are disclosed in Note 15.

CONTINGENCIES

The Company is involved in a number of claims pending in various courts, in arbitration, or otherwise unresolved as of December 31, 2020 or at the date of this filing. These claims are substantially related to non-payment of wage payables, non-payment of vendor payables and non-payment of loans and notes payables. Adverse results in these claims may include awards of damages and may also result in, or even compel, a change in the Company’s business practices, which could impact the Company’s future financial results.

| I) | Labor arbitration claims by former employees

Since November 2019, certain former employees of the Company commenced arbitration proceedings against the Company under applicable labor rules and standards, claiming, among others, lost wages and/or severance payments. The Company accrued approximately $0.4 million contingent liabilities in other current liabilities on the consolidated balance sheet as of December 31, 2019 and recognized contingent losses of approximately $0.4 million for the year ended December 31, 2019 upon the estimate of the management of the Company together with the trail counsel of these cases. Upon ruling of these cases, the Company further accrued approximately $0.1 million wage and/or severance payables in other current liabilities on the consolidated balance sheet as of December 31, 2020 and recognized losses of approximately $0.1 million for the year ended December 31, 2020.

| II) | Legal claims by vendors

Since November 2019, the Company has been the subject of multiple lawsuits by its raw material suppliers, printing and packaging suppliers, transportation companies and other vendors due to its non-payment of various invoices for vendor services rendered. As of the date of this report, substantially all cases have been concluded. The mediation and judgement involved with claims of liabilities arose before December 31, 2019 and the Company has included substantially all such claims in accounts payable on the consolidated balance sheets as of December 31, 2020 and 2019.

| III) | Legal claims by lenders

Since November 2019, the Company has defaulted on multiple loans and notes payable from various lenders. As a consequence, the Company has been subjected to multiple lawsuits by various Chinese banks and other lenders. The claims raised in these lawsuits pertain to the Company’s non-payment of principals and interests as scheduled in the loan agreements and note payable agreements. The claims pertained to liabilities arose before December 31, 2019, and the Company has included substantially all such claims in short-term loans on the consolidated balance sheets as of December 31, 2020 and 2019. The court has ruled on the litigations and among others, request the Company to pay for litigation related fees; repay the outstanding loans and interests to the lenders within a short period, normally 10 days, from the date of the rulings and grant the lenders with priority right of the repayment from the auction proceeds of the pledged real estate in case of non-performance by the Company. As of December 31, 2020, the Company has not fulfilled the court order.

The above legal proceedings led to, among others, the Company’s certain bank accounts and property, plant and equipment judicially frozen by the court as of December 31, 2020 and 2019. See recent development of legal proceedings at Note 19.

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Note 17 – LONG-TERM INVESTMENTS

In February 2018, the Company acquired 5% equity interests in Liujiayi Pet Technology (Beijing) Co., Ltd. (“Liujiayi”) for a cash consideration of RMB500,000 (approximately $79,400). The investment was accounted for at cost, less impairment, plus or minus changes resulting from observable price changes in orderly transaction for identical or similar investments of the same issuer, if any, using the measurement alternative due to lack of readily determinable fair values, pursuant to ASC 321. In June 2020, the Company transferred its equity interests in Liujiayi to a creditor as partial repayment of short-term loan owed to the creditor. As a result, the Company is no longer a shareholder of Liujiayi.

In March 2018, the Company invested RMB1,000,000 (approximately $156,200) in Shandong Tide Food Co., Ltd. (“Shandong Tide”), a pet food production company that was newly established in 2018, representing 37% equity interests in Shandong Tide. The investment was accounted for as equity method in accordance with ASC 323. The Company recognized its proportionate share of Shandong Tide’s net loss in the amount of $0, $4,903 and $17,524, respectively, into the consolidation statements of operations and comprehensive loss for the years ended December 31, 2020, 2019 and 2018, respectively. In June 2020, the Company transferred its equity interests of Shandong Tide to a supplier as partial repayment of outstanding account payable owed to the supplier. As a result, the Company was no longer a shareholder of Shandong Tide.

Note 18 – DISPOSAL OF SUBSIDIARIES

During the year ended December 31, 2019, Kangkang Development, Yichong, Lingchong and Lile were deconsolidated from the Company’s consolidated financial statements (also see Note 1). The Company recognized losses of $5,018 in connection with the disposals on the consolidated statement of operations and comprehensive loss for the year ended December 31, 2019.

The disposals mentioned above did not constitute a strategic shift that would have a major effect on the Company’s operations or financial results and as such, the disposals were not classified as discontinued operations in the accompanying consolidated financial statements.

Note 19 – SUBSEQUENT EVENTS

Progress of legal proceedings

As a consequence of non-performance of court ruling in relation to a litigation by CCB, the pledged real estate and land use right provided by the Company were auctioned by the court in March 2021 for auction price of RMB33,140,000 (approximately $5.1 million) to a third party, of which, RMB21,138,443 (approximately $3.2 million) has been used to repay the principal and interest to CCB and litigation fees incurred by CCB.

Subsequent issuance of common shares

On December 2, 2020, the Company entered into stock subscription agreements, pursuant to which the Company agreed to sell 9,100,000 shares to a group of investors for an aggregate purchase of $2,730,000, or $0.3 per share. In April 2021, a total of 9,100,000 common shares were issued to four investors with cash proceeds of $2,730,000 received in the same month.

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