TDH Holdings, Inc. Reports Fiscal Year 2017 Financial Results

QINGDAO, China, April 30, 2018 /PRNewswire/ – TDH Holdings, Inc. (NASDAQ: PETZ) ("TDH" or the "Company"), a PRC-based company that specializes in the development, manufacturing and sales of various pet food products under multiple established brands in China, Asia and Europe, today announced its audited financial results for the twelve months ended December 31, 2017.

Fiscal Year 2017 Financial Highlights:

• Revenues increased by 18.6% to $28.98 million for 2017, with growth in sales across overseas, domestic and E-commerce.
• Gross profit increased by 17.3% to $8.30 million for 2017 from $7.08 million for 2016.
• Operating income was $0.27 million for 2017, compared to $1.15 million for 2016. The decrease in operating income was mainly due to the increase in selling, general and administrative expenses that more than offset the increase in gross profit. Selling expense increased due to the increase in e-commerce promotion expenses, e-commerce platform commission, shipping and handling expenses and payroll expenses for marketing personnel, all part of the Company's strategy to expand E-commerce business in the past two years; and general and administrative expense increased primarily due to the increased professional fees related to the IPO and an increase in management compensation.
• Net income was $0.12 million, or $0.01 per basic and diluted share, for 2017, compared to $1.01 million, or $0.13 per basic and diluted share, for 2016.

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

Fiscal Year 2017 Financial Results

Revenues

The Company generates its revenues from product sales, mainly including sales for pet chews, dried pet snacks and wet canned pet foods. Revenue consists of the invoiced value for the sales, net of value-added tax ("VAT"), business tax, and applicable local government levies. For 2017, revenues increased by $4.54 million, or 18.6%, to $28.98 million from $24.44 million for 2016. The increase in revenues was across overseas, domestic and E-commerce sales. Our sales growth was mainly driven by the growth in sales volume as blended average selling prices for our products had been relatively stable for 2017 and 2016.

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

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

Cost of revenue

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

Gross profit and gross margin

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

Operating expense

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

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

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

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

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

Operating income and operating margin

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

Net Income and earnings per share

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

Financial Condition

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

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

Recent Developments

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

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

Notice

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

About TDH Holdings, Inc.

Founded in April 2002, TDH Holdings, Inc. (the "Company") (NASDAQ: PETZ), is a developer, manufacturer and distributer of a variety of pet food products under multiple brands that are sold in the China, Asia and Europe. The Company has four production facilities and offers in excess of 200 products, including pet chews, dried pet snacks, dental health snacks, and baked pet biscuits, as well as non-food items like dog leashes, pet toys, etc. More information about the Company can be found at www.tiandihui.com.

Safe Harbor Statement

This news release contains forward-looking statements.  Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements are only predictions, uncertainties and other factors may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Specifically, the Company's statements regarding its continued growth and business outlook, are forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict and many of which are beyond the control of the Company.  Actual results may differ from those projected in the forward-looking statements due to risks and uncertainties that are described more fully in the Company's registration statement on Form F-1 that was filed with the SEC. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized.  In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by TDH or any other person that their objectives or plans will be achieved. The Company does not undertake any obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

For more information, please contact:

Tony Tian, CFA  
Weitian Group LLC
Email: tony.tian@weitian-ir.com
Phone: +1-732-910-9692

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SOURCE TDH Holdings, Inc.