TDH(US:PETZ)2019-05-15 20:04Financial Performance - Total revenue for the year ended December 31, 2018, was $22,154,506, a decrease of 22.19% compared to $28,473,016 in 2017[249]. - Total net revenues for the year ended December 31, 2018, decreased by $5,305,474 or 18% compared to 2017, totaling $23,674,037[254]. - The company reported a net loss of $14,219,265 for the year ended December 31, 2018, compared to a net income of $115,111 for the year ended December 31, 2017, indicating a significant decline in profitability[284]. - Operating loss for 2018 was $14,043,772, representing negative 59.32% of total revenues, while in 2017, the operating income was $267,305, or positive 0.92% of total revenues[280]. Revenue Breakdown - E-commerce sales contributed approximately 16.05%, 19.79%, and 18.25% of total revenue for the years 2016, 2017, and 2018, respectively, with a revenue of $3,800,668 in 2018, down 33.72% from $5,734,121 in 2017[234]. - Overseas sales decreased by $5,357,701 or 25% in 2018, while domestic sales increased by $2,015,995 or 97%[254][255]. - E-commerce sales fell by $1,933,453 or 34% in 2018 compared to 2017[254]. - Revenue from South Korea decreased by $2,526,984 or 47% in 2018 due to the loss of a major customer[261]. - Revenue from dried pet snacks decreased by $1,240,858 or 8% in 2018 compared to 2017[257]. Cost and Expenses - Cost of revenues increased to $26,278,300 in 2018 from $20,283,321 in 2017, representing a 29.56% increase[249]. - Cost of revenues increased by $7,044,335 or 34.06% in 2018, resulting in a cost of revenues as a percentage of revenue of 117.12%[265]. - Gross profit for 2018 was $(4,052,796), resulting in a gross margin of -17.12%, a significant decline from 28.63% in 2017[249]. - Operating expenses rose to $9,990,976 in 2018, an increase of $1,961,268 or 24.43% compared to 2017[271]. - General and administrative expenses rose to $2,792,858 in 2018, a 33.27% increase from $2,095,676 in 2017[249]. - Research and Development (R&D) expenses for 2018 were $1,062,582, slightly up from $1,051,665 in 2017[247]. Cash Flow and Working Capital - Cash and cash equivalents decreased to $893,020 in 2018 from $2,346,109 in 2017[288]. - Net cash used in operating activities for 2018 was $2,173,742, primarily due to a net loss of $14,219,265 and significant increases in inventory write-downs and goodwill impairment[289]. - Net cash used in investing activities for 2018 totaled $6,594,458, mainly for purchasing property and equipment[291]. - Net cash provided by financing activities was $7,728,120 in 2018, primarily from short-term bank loans[293]. - Working capital was negative $11,340,516 as of December 31, 2018, a decline from positive working capital of $6,922,696 in 2017[287]. Assets and Liabilities - As of December 31, 2018, total assets decreased by 12% to $17,429,406 from $19,810,740 in 2017[306]. - Total liabilities increased by 124% to $19,365,973 in 2018 from $8,662,458 in 2017[306]. - The company had $8,263,038 in short-term loans outstanding as of December 31, 2018, a significant increase from $1,402,514 in 2017[296]. - Accounts receivable, net decreased by 56% to $845,800 in 2018 from $1,932,924 in 2017[312]. - Inventory balance decreased by 66.94% to $3,019,804 in 2018 from $9,135,332 in 2017[313]. Operational Insights - The company operates with a total daily production capacity of approximately 12 tons across its facilities[224]. - The workforce consists of approximately 204 full-time employees, with a focus on skilled personnel in animal nutrition, sales, and marketing[225]. - The company has established a comprehensive network of marketing platforms, including Tmall.com, JD.com, eBay, and Amazon, to enhance its sales strategy[227]. Accounting and Compliance - The company adopted ASU 2014-09 for revenue recognition effective January 1, 2018, resulting in a cumulative adjustment to retained earnings[351]. - The company plans to adopt ASC 842 for leases starting January 1, 2019, estimating total right-of-use assets and lease liabilities of approximately $0.67 million[349]. - Management believes that the application of critical accounting policies enables the provision of reliable financial information about operating results and financial condition[327]. - The company does not have any off-balance sheet arrangements that require disclosure, indicating a straightforward financial structure[324]. Market Conditions - The company has generally been able to pass on raw material cost increases through price adjustments, depending on market conditions[359]. - The company has not hedged foreign currency investments and manages price risks through productivity improvements[360]. - The company’s operations are primarily in China, where inflation rates have been stable, recorded at 3.1% in 2018[358]. - The exchange rate for RMB to USD as of December 31, 2018 was 6.8764, compared to 6.5064 as of December 31, 2017, indicating a depreciation of the RMB[338]. - The RMB depreciated against the U.S. dollar by 5.6% in 2018, which may affect financial results reported in U.S. dollar terms[477].